The retail water market is deregulating in April. That means firms in England will be able to choose their supplier. But can businesses expect to save much money? The Energyst asked brokers and end users.
David Peake, sales and marketing director with The Energy Brokers, says customers have “come around to the view that they will not make a significant saving [from switching] first time around”.
For larger firms, he says “the real value” lies in consolidated billing while intermediate-sized business may be “under the illusion that they will receive greater bill savings than they will actually get”. Meanwhile, for “single site customers with a small level of consumption, it is going to be a negligible saving”.
For those that do want to switch supplier, Peake advises a layered approach. “Rather than try to get a 2-5% saving from day one, we are advising clients to go shorter and also out of sync to the main round.
“Everyone is going to submit to an early [switching] round, assuming the market is ready,” he says. “But [instead switching all sites at once], we think it might be better to split portfolios, take some contracts out on a year, take some out on 18 months, some out on three years. That way, as the market develops greater liquidity, you start to see the benefit sooner,” he says.
“The lesson from Scotland is don’t take a 3% saving and lock out with that provider for three years. You would probably received better value going shorter,” suggests Peake. “So we are looking at whether we can devise a solution on that basis.”
Magnus Walker, director of trading and risk at Inprova Group, agrees bill consolidation is likely to be the initial main attraction. However, he points out that simply verifying the accuracy of existing metering and billing can deliver substantial savings, whether or not businesses actually switch supplier. “We hear lots of stories where people have been significantly over charged – and they have no way of knowing if that is the case without accurate data,” he says.
Amar Hussain, incoming managing director at Orchard Energy, says the broker has been active in the water market in Scotland for a number of years.However, Hussain says firms south of the border should “forget Scotland” in terms of percentage savings. He agrees 2-3% is more likely in the near term.
Whether many companies will bother to switch for that saving is debatable, he says, and may depend upon the relationship they have with their broker.
“My advice would be, if you trust [brokers] to handle it for you and it will not cost you any time and money, then why not?”
Hussain agrees with The Energy Broker’s David Peake that greater savings may materialise as the market develops, but is not convinced that splitting portfolios will make much difference.
“If you were to follow what happened in Scotland, it took more than 18 months before businesses really started benefitting from substantial savings. I think locking in 12-24 months isn’t going to be that detrimental,” says Hussain.
“It is a big unknown, but 12 months isn’t going to make or break anyone if the savings are 3%.”
End users: lukewarm
Paul Garland, UK energy manager for Vodafone, says “there is no large-scale jump to one [water] provider that we anticipate for our business” upon market opening.
“When it comes down to it, there is very little room for improvement in the margins in terms of cost,” he says. “The wholesale margin is 6%. Most of it is regulated cost.”
Garland believes the performance improvement “should be around what we can do to learn more about our consumption and how we can reduce it. That is what I have been trying to get to the bottom of. But it seems to be very difficult to get traction in the industry about electronic meters and automation of flows.”
On the flip side, Garland agrees new market entrants that harness technology to increase water productivity “could in theory disrupt” the status quo.
Sean Midgley, energy and environment manager at SIV, the operational arm of Sheffield City Trust, looks after 17 of the city’s sports and leisure venues. He says the trust is highly unlikely to switch supplier in the short term.
“We’ve listened to all the various water companies, we’re being bombarded by TPIs wanting to take on our water procurement and we’ve come to the conclusion that, at present, what we’ve got isn’t broken,” says Midgley. “So we’re not going to try to fix it, because there are other risks out there.”
Despite some “administrative issues” with its current supplier as a result of changes ahead of retail market opening, Midgley says overall, “we get a reasonably good deal at present with Yorkshire Water”.
Whereas some companies “are going to jump for the sake of saving a couple of thousand pounds a year”, Midgley notes the lessons learned from liberalisation of the energy market. “A lot of people back then got their fingers’ burnt.”
Water suppliers, though, have a different view. They believe large multisite operators can benefit from significant administrative savings, as well as use market opening as an opportunity to reevaluate and improve their water consumption and relationships with providers. Over time, they say, larger bill savings can be achieved.
Their views can be found in The Energyst’s 2017 Directors’ Report, available here as a free download. It contains a snapshot of key energy and water risks and opportunities for the year ahead, with views from our readers, consultants, brokers, suppliers and other experts.