Why more firms are obtaining electricity supply licences

Butlin: Supply licences can unlock value and new business models
Butlin: Supply licences can unlock value and new business models

Consultant Jo Butlin believes a push to obtain electricity supply licences by aggregators, local authorities and renewable generators is set to continue as they try to maximise value and minimise reliance – and payments – to incumbents. Meanwhile those that fully exploit opportunities afforded to licence holders may actually deliver the innovation in business models that has long been talked up.

The growth in the number of electricity supply companies has been well documented, with over 50 players now active in the market and no sign of an apparent slow down in new licences being granted by Ofgem.

What is less well understood is the opportunity that a supply licence potentially offers its owner – and increasingly it is not just about access to end consumers.

With the growth of competition, continual media bashing, a large proportion of consumers who haven’t yet had the appetite to switch supplier and a complex market to navigate, it is perhaps surprising that so many are still keen to enter the fray.

However, look a bit closer and the emergence of new ‘non conventional’ models gives some clues as to why this is happening:

1.     Local government

Robin Hood Energy, Bristol Energy and many other local authorities are leading the way with new more localised models. Robin Hood is positioned as a not for profit organisation and Bristol is championing social equality, local renewables and stronger communities. As well as the emotional pull that is hoped will attract new customers, what these and other local authorities are realising, is that the ability to optimise council owned and locally generated power supported by strong credit ratings potentially gives the new businesses a real competitive edge in an inherently low margin business.

2.     Growth of demand-side response (DSR)

The growing need for demand side response actions in order to balance the UK system is driving the growth of a plethora of new market participants. These businesses are genuine disruptors as they are technology-led and agile. They can reposition quickly as new value pools emerge. However, what many of them are realising, is that however clever the technology in reducing demand, the attributable value ultimately flows via the supply licence holder who inevitably want their cut. Increasingly suppliers and DSR providers are becoming one – whether through partnership or in the recent case of Limejump by acquiring a supply licence. This trend is likely to continue.

3.     Route to market for renewable generation

With the slashing of Feed in Tariffs (FiTs) and closure of the Renewables Obligation, many small scale renewable developers, particularly in solar and onshore wind are increasingly under pressure. Historically suppliers have been, and still are, the primary route to market for the power via FiTs or Power Purchase Agreements. However, inevitably value is lost via fees and charges by accessing the market this way. For those who have the appetite to build a trading/optimisation function and create an integrated service offering, a supply licence provides a route to value creation. More complex than the historical channel, but potentially appealing for business sustainability, particularly if the market shifts towards energy as a service.

4.     Energy as a service

‘Energy as a service’ is a phrase being bandied more and more. The trend towards the integration of supply, generation and demand management means that the world for customers (and suppliers) is increasingly complex. Offering warm, lit offices, factories and ultimately homes at lowest cost is potentially a more attractive proposition to customers than having to work it out themselves. We are starting to see convergence of the relative parts of the value chain through acquisition, partnership and in-house development. In this new energy retail model, the supply licence, or more to the point, access to the market which an optimisation function can leverage, is the key to unlocking much of the value.

Complex and increasingly competitive, straight energy retail is a hard market to play in. However, for those wishing to leverage the value that an electricity supply licence offers, there is an opportunity that will ultimately only result in innovation and more appealing choice for consumers – finally moving us on from price-focused products to proposition-led services.

That represents an exciting phase in market development.

Jo Butlin has recently set up EnergyBridge, a consultancy focused on helping businesses and investors navigate the UK energy market. 

This article was first published on LinkedIn.

Related articles:

Wirral Council plans local energy company

Liverpool City Council launches energy company called ‘the leccy’

Local authority energy companies to drive down business energy costs?

Bristol City commits £5m to heat network, eyes bigger prize

Energy suppliers step up DSR efforts

Limejump: Big six will have to acquire aggregators or fall by the wayside


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