Energy nationalisation is already happening

Are the big six at risk of being displaced by an increasing number of council-owned, not-for-profit energy companies? 

 

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In September 2015 Robin Hood Energy, owned and set up by Nottingham City Council, started supplying energy to Nottingham residents on a not-for-profit basis. It has since partnered with Leeds, Liverpool and Derby councils, supplying them with energy and continuing to challenge established providers. Bristol City Council followed suit in February 2016, setting up Bristol Energy to serve Bristolians, and customers further afield.

The increasing prevalence and reduced price of the green energy sources rapidly changing our energy mix, combined with turbulence in fossil markets, is putting pressure on the established energy providers known as the “big six”. GB Energy went bust last year, citing “swift and significant increases in energy prices”. “They hadn’t bought [energy] for their customers,” explains managing director of Bristol Energy, Peter Haigh. Centrica, big six provider and owner of British Gas, suffered a 15 per cent loss in the value of its shares in a single day last week, and is expected to only break even this year, in part due to “highly competitive [UK] market conditions”. The last few years have seen a number of sprightly, council-owned companies take on the tired energy market. With a greener future almost inevitable – something that will harm the more fossil-reliant established energy providers – and local authorities keen to claw back control over basic services, the market is ripe for disruption.

Laurie Laybourn-Langton, senior research fellow at IPPR, says these new municipal companies have three main aims: to alleviate fuel poverty, generate revenue for otherwise austerity-stricken councils, and increase the levels of green supplies in energy usage. He points out that the business model of these companies is the exact opposite of large corporates. “These council-owned energy companies are actively seeking to bring customers onto lower tariffs to provide them with the ability to use less energy, which is an exact inversion of the business model of the big six.”

According to Bristol Energy, 25,000 households in Bristol alone are experiencing fuel poverty, and that number is growing. The provider now has 110,000 customers. It buys a mixture of energy “from the national grid, and renewables under separate contracts,” explains Haigh. Its relationship with Bristol city council, which owns the shares, is largely like any other stakeholder-company board relationship, but it is also about “governance and ethos. It’s about serving the citizens of Bristol.” Any revenue is invested back into the city as the council sees fit. “We’ve already saved the city millions of pounds in terms of savings that have gone back into the local economy.”

This year Ofgem found that the average standard variable tariff is £300 more expensive than the cheapest one available. Bristol Energy offer a range of tariffs, and claim that their cheapest tariff is £260 a year cheaper than the average big six deal. “We always make sure that the pricing of those tariffs, whatever mechanism a customer chooses, is fair,” says Haigh. Central to its business model is the concept of inclusivity. “From the outset, you’ve got to look at as many channels as you can for your customers to be able to engage with you. Most of our customers will be very happy using the internet and the portal, [but] some will want to wander into the hub, right here in the centre of Bristol. We’ll make you a cup of tea, we’ll go through the paperwork, and we’ll tell you why your old supplier is telling you a load of rubbish.”

A huge part of the success that companies such as Bristol Energy are experiencing is reported to be due to high levels of trust “because they’re associated with local authorities,” says Laybourn-Langton. For Haigh, it all comes down to trust, and he doesn’t pull his punches. “We never, ever lose sight of the fact that the stuff we sell heats your home and cooks your food … If your business model is absolutely pivoted on ripping off customers who displayed loyalty to you then you deserve to be found out and action deserves to be taken against you.”

Laybourn-Langton explains that evidence points to a sharp increase in competition. “We can measure [regions’] competitiveness when it comes to the price of energy and the East Midlands moved from somewhere around 7th position to 1st position after Robin Hood Energy was created.” For the big six, he argues, these municipal providers present a serious problem; it is difficult to outdo a company whose motivation is not profit. “How are [the big six] going to come up against this wall where their business model is still geared around massive scale energy that is not de- carbonising, and they do earn extraordinary amount of profit from exploiting the fact that people aren’t switching or aren’t aware that switching exists?”

The trend is escalating, no doubt to the dismay of the big six. In her 2017 conference speech, Scottish first minister Nicola Sturgeon announced her intention to create a publicly-owned energy firm for Scotland by 2021. The SNP’s business, innovation and energy minister Paul Wheelhouse explains the reasoning behind this commitment: “In 2015 almost a third of Scottish households were in fuel poverty, largely as a result of fuel price increases rising far faster than wages. The UK government have repeatedly failed to provide the competitive and fair market which hard-pressed consumers deserve, so the Scottish government is looking to establish a publicly-owned energy company to help deliver lower, and fairer, prices. Once established, it is our intention that the company will provide more choice for consumers and the option of a supplier whose aim is to secure the lowest possible price for them.”

Emma Hughes from Switched On London – a group campaigning for a London-based, not-for-profit energy provider argues that London is the perfect market for the introduction of a fully-licensed publicly-owned supplier. “The size of London actually makes it particularly appropriate for an energy company. There is a viable supply market.” She believes City Hall could make sure that there was adequate demand from the off. “The Mayor could set up contracts to supply a certain amount of, say, TFL’s energy, the Metropolitan Police’s energy. It has a guaranteed customer base. It’s really much less risky for London to do it than other cities.”

During Sadiq Khan’s 2016 campaign to be Mayor of London, he made a bold pledge to create a not-for-profit municipal energy company to serve Londoners. Since then, he has backed away from this promise, instead opting for a white label, or “license-light” company, in which a partnership is created with an existing energy provider, such as the arrangement existing between Robin Hood and Leeds, and other city councils. “License-light is where you pair with a big supplier, you put your branding on top and they’re working behind the scenes,” Laybourn-Langton explains.

The Institute For Public Policy Research (IPPR) believes that for a meaningful reduction in fuel poverty, and an increase in green energy usage, the company must be fully licensed, and autonomous. “It’s only through being a fully licensed supplier that you could provide the full range of things that London really needs,” argues Laybourn-Langton. He points out that a private company working with City Hall, or the Greater London Authority, will have no motivation to scale demand management and reduce the rate of consumption, especially of fossil fuel energy. “You’re still locked into their conflict of interest for their business model, whereas if you’re a fully licensed supplier you are your own separate entity.”

Hughes says that by the Mayor’s own measures, a license-light option will not provide the solutions for London’s requirements. “His own study showed that a white label is not going to deliver the same amount of job creation and it’s not going to give us control over tariffs. There’s a concern that the local energy companies created through a white label would end up with a higher prevailing market tariff that the standard market rate, so it’s going to do nothing to alleviate fuel poverty.”

She believes the City Hall retreat from a municipal provider is “political opportunism at its worst” as the time taken to set up a fully licensed supplier is likely to outlive Khan’s mayoral term. A lot of work was already completed under the Johnson administration to put a white label company in place, and would only take roughly two years to implement.

Hughes believes that, ultimately, London could not only be providing energy, but generating it. “London could be buying wind farms in the North East … putting solar panels on bus shelters. We want to see London generating.” Laybourn-Langton agrees with this long-term vision; “you want to also be getting energy from the assets that you’re encouraging the investment in and creation of throughout London.” Bristol city council is leading the charge in this respect, as Haigh explains: “Bristol as a shareholder already has quite a bit of its own generation. It has wind farms out at Bristol dockside; you’ve got solar panels that are on the roofs of a number of buildings across the city.” Bristol Energy is the only provider to offer the choice to use 100 per cent renewable energy.

Greenpeace supports the growth of municipal energy companies as a means of speeding up transition to green energy usage in the UK. “Clean power projects run by communities or councils have a real potential to shake up our energy market for the benefit of bill payers and the environment,” says energy campaigner Elizabeth Whitebread. “Especially now that the costs of renewable energy are falling fast, the government should look to remove barriers for community energy projects while councils should seize the opportunity to step into this market.”

Hughes thinks the creation of these companies says a lot about the failure of the established energy suppliers to fight back. “I think the story that isn’t being told here is that the big six are actually in trouble ... [they] aren’t doing well.” When Bristol Energy first entered the market, did the big firms apply negative pressure? “To be fair, they didn’t,” Haigh says. “I think the days of the big six acting out that way are behind us.” City Hall may be dithering, but for consumers the lines are starting to be drawn between the price of fuel, both in monetary and carbon terms, and those who provide it.

Augusta Riddy is a Special Projects Writer at the New Statesman.