Local authorities are launching energy companies. Some now supply businesses, sign power purchase agreements with local generators, and seek TPIs to scale their B2B rosters. What hurdles do council entrants face, asks Brendan Coyne
Local authorities are watching Bristol Energy and Nottingham’s Robin Hood Energy, the first UK municipal energy companies to launch in the modern era. They’re mulling whether to enter the fray – and service providers working with them believe further launches will be under way within the next year.
Wirral Council broke cover in March, the council debating whether to start a franchise or ‘white labelling’ arrangement with a company such as Robin Hood, or go the whole hog and acquire an energy supply licence.
There is a third option, the ‘licence lite’ route, being pursued by the Greater London Authority, but whether any other LA will go down that path is debatable, given its complexity.
White labelling is the most straightforward option for councils. It means they reduce their risk and required resources, and can elect to just handle marketing and engagement. However, they cede control to a third party, which manages everything else. When the third party puts up prices, they have to communicate that to their customers.
Becoming a licenced supplier gives councils full control, enabling them to set prices and packages, sign power purchase agreements with generators, and ultimately become a national supplier as well as white label partner. But it requires resource and no small commitment.
“It’s not something you can do casually,” according to Utiligroup strategy and marketing director, Mark Coyle, who says the firm works with a number of local authorities.
“You can get help from third parties to enable efficient delivery at the right price point. But you have to become intimate with forecasting demand, the tariff you are setting and your trading partner.”
The commitment to an energy business, he says, “is for life, not for Christmas”. It is critical not only to secure the right blend of skills, resources and partners, he says, but also to “keep the politics out and the decision making clear”.
Councils think they can offer customers better prices due to lower overheads, and in some cases, not-for-profit models. Can they actually beat the Big Six on price?
“There is some truth [in those claims], but it needs validating every time,” says Coyle.
“I don’t think they will ever be 20-30% cheaper [than the Big Six], but a 5% saving in this market can make a big difference. And some suppliers have taken it further than that,” he adds.
“But leanness and good technology are most important, because then you don’t have the overheads that the Big Six carry.”
As well as hedging and pricing strategy, any council that takes the licenced route has to nail billing.
Energy companies that can’t bill accurately tend to quickly lose customers and suffer reputation damage. It can also be costly: British Gas, Npower and Scottish Power have all paid multimillion pound penalties for botched bills.
Utiligroup’s Coyle says there a numerous “good” billing systems and integrators in market to help local authorities choose the right technology. But he reiterates the importance of councils securing the right skills and experience in their founding teams.
As well as local authorities, Paul Fitzgerald, sales and marketing director at billing firm Junifer Systems, works with a number of utilities that have entered the UK market from overseas. He says they soon realise the UK energy market is far more complex than their home territories.
Aside from the regulatory aspects, there is vast data coming from multiple parties that must be properly managed to ensure bills are as accurate as the data they are based upon.
That makes it “an interesting dilemma for local authorities deciding whether to get into the business or not,” he says. “It is very complex.”
That said, there are many local authorities that are “extremely savvy” in terms of energy, says Fitzgerald.
“Some have district energy or may be producing energy from waste, so there are a number of councils that know what needs to be done. For those that are not as comfortable, there is the option of white labelling.”
Which local councils might be next?
Nottingham’s Robin Hood Energy is proactively entering white label agreements. It has signed deals with Leeds for White Rose Energy (which has soft launched), Liverpool, which has called its company ‘The Leccy’, and with Leicester.
Several other councils are exploring the market, such as Cornwall Council, Birmingham and Islington.
Indeed, there are so many LAs looking at Bristol and Robin Hood that some consultants have warned prospective councils not to become time wasting ‘tyre kickers’ that hamper their success.
So how many LAs will actually take the plunge?
“None are going to do a Nottingham or Bristol in the coming weeks,” says Coyle. “I think we will see momentum through this year and a number launch at the back end of this year and early next year.”
Business energy supply
Bristol Energy already supplies businesses nationally that consume up to 3GWh per site per year and plans to supply larger firms in the coming months. Nottingham also quotes for business tariffs.
Utiligroup’s Mark Coyle thinks some councils might actually start supplying businesses before residential customers, especially those with large estates of their own.
Calling all TPIs
Councils as B2B suppliers presents an opportunity for third party intermediaries. Bristol Energy is calling for TPIs to help scale its business operation both locally and nationally. The company says it will deal with firms that ‘share our ethos to offer fair and transparent prices to businesses’, and ‘welcomes enquiries from those who comply with one of the recognised TPI Codes of Practice’.
A version of this article appears in the April/May print issue of The Energyst. You can subscribe here for free.