Publicly owned energy minnows take on big six in troubled UK market

A wave of new publicly owned companies is taking on the big six energy suppliers, as local authorities search out new revenue and seek to restore faith in public services and tackle fuel poverty.

Islington council last week launched a not-for-profit energy firm, London’s first municipal operator in more than a century, while Doncaster’s energy company will start early next month.

Portsmouth is also on the verge of becoming the first Conservative-controlled council to launch one, to bring down residents’ bills as well as bringing investment to the city.

The first and best-known publicly owned energy companies, Robin Hood Energy in Nottingham and Bristol Energy, started two years ago. But the growing trend came to the fore this month when Nicola Sturgeon promised to create a Scottish public energy company by 2021.

“No shareholders to worry about. No corporate bonuses to consider. It would give people – particularly those on low incomes – more choice and the option of a supplier whose only job is to secure the lowest price for consumers,” Scotland’s first minister said, in an echo of the marketing used by the councils who have already started their own energy companies.

Sturgeon’s firm will be entering an increasingly crowded space: publicly owned firms include Liverpool’s Leccy, Derby’s Ram, and Leeds’ White Rose. Councils in Sussex are clubbing together to launch Your Energy Sussex latter this year.

The driving forces for these councils stepping into the complex, heavily regulated energy space are largely twofold. One is the need to create a new revenue stream in a time of austerity, as well as rebuilding the public sphere – councils are perhaps most visible to residents when they close libraries and cut other services.

But there is also a political project afoot as well, as Labour-controlled councils such as Nottingham push an agenda that has since been picked up by Jeremy Corbyn during the last election.

There is also genuine concern over fuel poverty, and a hope that local authorities will be more trusted than the usual energy suppliers, that even Theresa May says have ripped customers off.

“It’s about councils trying to provide a trusted and better service for people to switch. We want a challenger model to the big six,” said Labour MP Caroline Flint, whose Doncaster constituency will see the launch of publicly owned Great Northern Energy on 7 November.

The flurry of such firms showed Labour’s manifesto pledge of a publicly owned energy supplier in each region was happening regardless of the party’s failure to win power in June’s snap general election, Flint said.

Tackling the growing amount of households in fuel poverty, which number 2.5 million in England and Wales, is another big motivation.

Steve Battlemuch, chair of the board of Robin Hood Energy and a Labour councillor, said: “Nottingham has a lot of fuel poverty, lot of people on prepayment meters [which people in energy debt are often moved on to]. That was what drove us: coming into the market and driving down prices for the customer.”

Like other public firms, part of his sales pitch is that there are no corporate masters to pay.

“There’s no shareholder bonuses, because there’s no shareholder apart from Nottingham city council. There’s no director bonuses. I had a cupcake on our first anniversary,” he said.

Peter Haigh, managing director of Bristol Energy, said his organisation was more inclusive than private companies, and its physical presence in the city was a big attraction.

“Customers can and do walk in, sign up and pay a bill. That often attracts customers who have never switched, people who can pop in face to face,” he said.

Part of the reason councils are getting into energy is the barriers to market are not as great as they once were.

Mark Coyle, strategy director of Utiligroup, which has provided services to most of the publicly owned energy companies, said: “We’ve been able to lower the barriers for them, without lowering compliance.”

But while the sector appears to be burgeoning, combined these companies are a minnow compared with the blue whales that are the big six firms, which between them account for 80% share of the market.

Bristol Energy is biggest publicly owned energy supplier, with about 110,000 customers; Robin Hood has just over 100,000. Both have created more than 100 jobs locally, but neither has yet recovered their start-up costs.

Moreover, while such firms appear to be proliferating, most are simply rebranding off Robin Hood rather than setting up as fully licensed suppliers which can buy energy on the wholesale market. The approach has its critics.

“Islington are doing a good thing but it’s a shame that they’ve had to go to Nottingham to buy the energy,” said Caroline Russell, a Green party London assembly member.

Sadiq Khan, London’s mayor, has promised to create an energy company for Londoners, but has been slow to deliver.

Last month he was advised by experts to piggyback off an existing supplier, rather than create his own licensed company. While cheaper and quicker to do, it would also mean he had less power and flexibility to offer something genuinely new and different compared with the 50-plus private firms already in the market.

Nigel Cornwall, founder of energy analysts Cornwall Insight, said that while he was supportive of publicly owned energy companies, it was revealing that many councils were opting to ride on Robin Hood’s coat-tails rather than set up their own licensed firm.

“This is high-risk stuff. The sector is complicated. You [the council] probably don’t have the resources. You’ve probably underestimated the costs. And that’s with costs of entry falling dramatically,” he said.

Cornwall said he was also sceptical as to whether the companies would be sustainable and would become a permanent fixture in the market – but that would not stop them trying.

Battlemuch said: “What we need to do is break through into the mass market. That’s what we’re trying to do.”

 

Source : https://www.theguardian.com/business/2017/oct/27/publicly-owned-energy-minnows-take-on-big-six-in-troubled-uk-market

SMART GRID Bulletin October 2017


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