Brokers still hold huge power in the business-to-business supply market. But some firms think they are too opaque and inefficient. They believe technology can disrupt the status quo. Brendan Coyne reports.
Chris Bowden founded Squeaky Clean Energy to give mid-sized firms the power to strike deals direct with renewables generators in the same way large corporates do. In a nutshell, “we cut out the middle man and buy direct”, he says.
Bowden, who co-founded Utilyx before selling to Mitie, understands the limitations of the traditional procurement model. He claims Squeaky’s peer-to-peer platform, which connects buyers with sellers, enables firms to buy clean power for the same price, or less, than brown power.
“The mid-sized corporates can see what Google and others are doing and want to do the same,” says Bowden. “But they come up against high search and transactions costs. We have a lot of generation [signed up to the platform] and can cut through all of that. We make it easy for them to buy power like Google, right down to a megawatt – it doesn’t have to be a big deal.”
As well as longer-term contracts between customers and generators, the company also offers short-dated contracts, typically one or two years, targeted at SMEs.
Bowden says the firm is “very particular” about the brokers it partners with.
“They have to be fully transparent, which limits considerably who we can work with. Many are just not treating us, or the customer, fairly in terms of the fees they charge. It is rife and I have no idea why Ofgem does not regulate the market properly.”
Bowden thinks non-disclosure agreements between suppliers and brokers should be challenged. But in the meantime, “Our business model is squeaky clean,” he says. “If you are going to rip off your customer, you are not going to work with us. We will not give you prices.”
Bowden claims Squeaky is not just a P2P platform but an energy technology, or ‘entech’ firm “disrupting a legacy industry”.
“It is not just about cutting out the middle man. It is about what tech and data can do. This is an analogue industry that is being digitised. And that will be quite disruptive.”
He cites time of use tariffs, which Squeaky is starting to trial, by way of example.
“We have an abundance of data from both generators and customers – when and why they are consuming. We are building databases to find patterns that enable us to offer different approaches to pricing energy,” says Bowden.
“Corporate contracts are all day-night rates. Why? Because suppliers can only bill day and nights – and they struggle to do that. But you could split the day into five periods, similar to time of use tariffs emerging in the US. That is the sort of thing we need to look at.”
Bowden says Squeaky will “probably” offer ToU tariffs this year but expects uptake to be a “slow burn”.
“We need at least a year’s cycle of adoption to build data, refine and show case studies.”
While tariff innovation may take some time to deliver, Bowden suggests companies should in the meantime simply question whether they are paying a fair, transparent price for their energy – and not be afraid of the answer.
Opening the energy market
Open Energy Market is another platform trying to make procurement more efficient. CEO and founder Chris Maclean underlines that the company is still a broker but instead of using “an army of people with spreadsheets”, is attempting to use technology to strip out cost, opacity and complexity to give customers a better deal.
“The industry is relatively backward. You have to acknowledge that and innovate to make it simpler for customers. So the platform first and foremost enables a closer way for suppliers to interact with buyers and buyers to take more control of the process.”
Crucially, Maclean says the platform “captures a lot of the data that goes with that process” then automates as much as possible so that “a buyer can sit in front of the platform and know instantly what they have to do”.
He says transparency is at the heart of the platform, with suppliers pitched on a like-for-like basis. That is not always the case when comparing contracts in the broader market, Maclean suggests. He says Open Energy Market’s fee is also transparent.
Meanwhile, following Open Energy Market’s acquisition of customer data, customers are not obliged to take a contract.
“It is fully transparent. The customer knows what the outturn price is going to be and if they don’t like it, they don’t have to take it. It’s a bit like a price comparison site in that it allows customers to very easily get a price without being bound and without any cost,” says Maclean.
“That is important because it enables people to benchmark. One of the biggest issue for people who contract upfront is that they go through the process, then find themselves bound by a legal agreement that locks them in with no regulation on that broker to adhere to a price.”
Open Energy Market has just secured £3m in funding from Calculus Capital to scale its operations. As well as expanding into the US market, Maclean says the firm plans platform improvements that enable better integration of on-site generation data with site consumption data, and how that affects procurement.
Maclean agrees with Squeaky Clean’s Bowden that there is significant potential for emerging platforms to do the job that some feel is the remit of a regulator.
“Yes, there is growing competition – and I welcome it. Because the greater the competition, the greater the focus on transparency, the more savvy buyers will become,” says Bowden.
“We’ve been waiting for regulation for 15 years and nothing’s happened. But smarter, more educated buyers enables self-regulation,” he says.
“There are some really good brokers, whether they have technology or not. There are also those looking to make a fast buck and leave – and I think it will be harder for those guys going forward.”
Helping SMEs to help themselves
Former Utilitywise finance director Andrew Richardson has just launched a benchmarking and switching platform for small businesses called Troocost. He says it does not uplift suppliers’ kilowatt hour rates and discloses the same flat fee it is paid by all suppliers should customers decide to switch.
Richardson, pointing to CMA findings that small businesses are being ripped off by about £500m on energy contracts, says the aim “is to put some efficiency back into the market”. In a soft launch phase, the company has around 600 customers signed up to the platform. Richardson says the average saving per switch is about 30%, “which is not surprising, considering broker fees are typically between 10-40%”.
“Troocost came about because the TPI business model is based on a fee provided from a supplier and an uplift applied by the broker to the rate which is then passed on to the customer,” says Richardson.
“I have no problem with that per se – there are a lot of good TPIs, but there are also a lot of rubbish ones. The problem I have is that it is not transparent, it is unregulated and they do not have to disclose the fee to customers. So it is very difficult for customers to get an idea of value.”
A flat fee means Troocost is not incentivised to push one supplier over another. There is no cost to customers, who “at worst can benchmark”, says Richardson.
He says the platform takes the hassle out of switching by simplifying the required data into “an easily digestible list”
“If you are concentrating on cutting hair or making widgets, your contract renewable comes up once a year and it can be quite complicated: Location, industry sector, type of meter etc. It can be difficult for people to get heads around,” says Richardson. “Our system cuts through that, presents the choices, and the customer decides what they want to do.”
He says while some TPIs “attempt to be the sage of the energy industry”, Troocost wants to be the opposite.
“If you want a complicated plan, we are not the people to come to. If you want a straightforward, transparent switching service, we are.”
He says one SME – a hotel chain – that switched saved £80,000 on what it had been paying via a broker.
“That’s a compelling story and a huge swathe of the market is yet to realise how brokers make their money. That client thought it was receiving a good service [from its broker],” says Richardson. “Direct selling is a tough job, so they are very good sales people. They befriend clients – and the last thing anybody wants to realise is their ‘friend’ has been diddling them for years. So we think we are pushing at an open door.”
He advises businesses that use brokers to ensure they obtain permission from the broker to ask suppliers to disclose on the bill the brokerage fee charged. If that consent is obtained, “the supplier has to tell you the truth”, says Richardson.
This article was originally published in The Energyst’s Feb/March print issue. The magazine covers all aspects of business energy and is free to those with some responsibility for energy within their organisation. If you would like to subscribe, click here.