The UK energy market is changing. After being dominated by the big six since the 1990s, the sector is finally becoming more competitive thanks to renewable tariffs, dynamic pricing and a proliferation of publicly owned and small- and medium-sized providers.
In the past couple of years, a handful of local authorities have entered the fray and established their own energy companies. They may still represent a small proportion of the market, but with promises of cheaper tariffs and greater transparency – and with public distrust in the top six companies on the up – could municipal energy one day edge out the big six?
This will partly depend on whether councils can become fully licensed providers, as Bristol Energy and Robin Hood Energy in Nottingham have done. “It takes a great deal of leadership, and capacity in resourcing and staffing to be able to set up a fully licensed energy company,” says Joshua Emden, research fellow at thinktank IPPR, the Institute for Public Policy Research. It also requires extensive market knowledge, a long-term investment – and commitment.
But with average cuts to council budgets of 26% since 2010, and growing demands for services such as children’s safeguarding and adult social care, investing in an energy company is out of reach for many local authorities.
“It’s a bit of a chicken and egg situation,” says Emden. “If councils had more money they’d be able to spend more time investing in resources, learning, and scaling up these activities. But in the absence of any funding increases from central government, they can’t get more money until they set up the company.”
With some forward thinking and investment, the rewards can be significant. While energy savings will vary household to household, Bristol Energy currently saves residents around £200 a year* on average if they’ve switched from a standard deal with a big six provider. “We think around 111,700 households in Bristol are on a big six standard variable tariff, so that’s a potential saving of more than £22m for the city,” says Bristol Energy’s managing director Peter Haigh.
As well as offering lower tariffs, many local councils are reinvesting profits into the community. Whenever a household switches to Bristol Energy and mentions “fuel good”, up to £30 is donated to the Fuel Good Fund, an initiative that works with families to keep their homes warm through simple home improvements, such as draught proofing and boiler repairs. It also offers debt advice and helps people to switch suppliers.
Some councils have opted for the “halfway house” option of “white-label” energy – where the local council sells the energy, but another fully licensed supplier such as Bristol Energy or Robin Hood provides it and sets the tariffs.
“So much is involved in setting up a fully licensed energy company,” says Bram Kainth, director of public realm at Islington council, which set up Angelic Energy as a white-label product of Robin Hood Energy in October 2017. “We took the view that it would be better to work with another local authority with similar principles and a similar social ethos.”
Setting up a white-label product is the most straightforward option. It’s quick, easy and reduces risks, allowing councils to focus on their main reason for establishing an energy company: tackling fuel poverty.
“Despite more than 69 active domestic energy suppliers in the UK market, millions of people are still overpaying to heat their homes or cook a meal,” says Peter Haigh, managing director of Bristol Energy. In 2015, the latest year for available data, around 2.5m households in England (pdf) were estimated to be living in fuel poverty. Meanwhile, overcharging by the big six – British Gas, EDF Energy, E.ON, npower, Scottish Power and SSE – has been estimated at £1.4bn a year.
“We’re trying to become a fairer Islington – dealing with inequality and helping the vulnerable,” says Kainth. “We were already trying to address fuel poverty through capital projects – such as combined heat and power, solar panels, wall insulations and putting in new boilers – and we were also trying to give people advice about fuel debt. Becoming an energy provider complements the mix of measures we were taking.”
And while Derby’s Ram Energy, which also launched in October, won’t break even for a couple of years, it already plans to reinvest profits back into energy efficiency initiatives. “It will be a case of using the money generated to cover the cost of marketing and staffing … and then seeing where we can best invest to continue to address fuel poverty,” says Karen Brierley, housing development and PFI team leader. “We can offer discounts – have a month where anyone who signs up would get money off their bill – or we might do boiler replacements.”
Unlike the customer relationship with the big six, the public is in a more powerful position to hold municipal suppliers to account thanks to regular local elections.
“The fundamental neoliberal economic assumption that if you don’t like something then you’ll move just doesn’t stack up with energy,” says Emden. “There’s an inertia, an asymmetry of information between consumers and those offering the prices. The difference between that and municipal energy companies is that if bills go up, which they may do, then people can vote with a vote, rather than with their wallet.”
And it seems that customers are already responding to the opportunity to save money on their energy bills while helping to give back. “Between January and February this year, nearly a third of all switches went to small and medium sized suppliers. We also have more customers at this point than we expected, and people are staying with us,” says Haigh. “It will take time to engage people with a new way of doing things [and] we can’t fix the energy system overnight, but we’re confident that publicly owned energy is part of the solution.”
*Calculation correct at 4th May 2018
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