Ambition and challenges of Council-owned energy company
Can Bristol’s new publicly-owned energy provider make its mark in such a tough sector?
Words: Molly Asher
Photo: Sarah (CC)
After more than five years in the pipeline, Bristol Energy company (BE), an energy provider owned and operated by the City Council, has recently begun taking on customers.
The company’s aims focus on three areas: to provide energy at a fair and competitive price, help to lower carbon emissions, and – notably – to generate much needed revenue for other council services. With Bristol’s year as European Green Capital drawing to a close, could this be a chance to leave a lasting legacy with tangible benefits for the people of Bristol?
Some of the funding for Bristol Energy comes from the European Investment Bank through their ‘ELENA’ programme, which aims to support local energy initiatives. A number of business models were considered for running the company, including working in partnership with an existing energy supplier. Cheshire East Council and Plymouth City Council are using this model to provide community energy companies in partnership with Ovo Energy. However, Bristol City Council made the decision to go it alone.
A challenging market
Breaking into the competitive and cut-throat energy market would be a risk for any investor, let alone a local authority. “No investment is without risk,” comments Stephen Perry, the former director of Bristol Power Co-op, “… We can’t be certain how many customers it will have..[and] in the world of energy we are looking at competition from the big international oil and gas companies over which government can have little control”.
Ovo Energy’s track record gives weight to the concerns. Despite being in operation since 2009, the Financial Times reports that Ovo, which is based in Bristol, made pre-tax losses of £37.3m in 2014 due to the high cost of recruiting new customers.
The Council estimates that Bristol Energy has cost between £3.5m – £4.2m to get off the ground. Despite the significant financial risks, they’re sure that BE is a “worthy investment”, says Joana Abreu-Jackson, Bristol Energy’s public relations officer.
Everyone’s a winner?
How BE plans to deliver on its promise to provide cheaper and greener energy remains unclear. George Ferguson has been quoted calling Bristol Energy a “landmark achievement during our year as Green Capital”. Yet as the year ends, the environmental benefits of the venture remain opaque.
One of the company’s core missions is to focus on locally generated, low carbon energy. However, with renewable energy remaining more expensive than traditional sources, compromise appears inevitable. Abreu-Jackson admits that the company recognises this, and aspires only to “become low carbon over time”. The Council hopes that the success of the company will increase the amount of renewable energy generation occurring locally. Profits of the company could be used to finance more projects such as the Council’s investment in two wind turbines at Avonmouth.
In terms of benefiting consumers, one group that the company have their sights set on helping are pre-payment meter customers, often low-income and renting households, who bear the brunt of the notoriously inequitable pricing of the energy market. Nationwide, pre-payment bills are on average £226 more expensive annually than the cheapest direct debit deals. This extra cost impacts many residents in Bristol, where the incidence of fuel poverty, at 13.2%, is already higher than the national average.
Peter Haigh, the managing director of BE, has kept these customers – and their reticence to switch supplier – in mind when shaping the company’s marketing policy. BE will operate through physical shops as well as online, which is unusual. Abreu-Jackson says this will be an opportunity “to make it easier for local communities to access information that will help them keep warmer for less”.
A similar initiative is Robin Hood Energy, which was established as a not-for-profit supplier by Nottingham City Council in September this year. Although not quite as radical as its namesake, with no bonuses for staff and unpaid directors, Robin Hood Energy can at least be confident that, unlike the Big 6 energy companies, they are not lining the pockets of the rich from those of the poor.
BE, however, does intend to turn a profit. Minutes of a July 2015 cabinet meeting reveal that the business plan predicts the company will break even in November 2017, and begin to generate a profit by June 2019, which will be reinvested into squeezed social services. The business plan is not available for public scrutiny, but publicly available information states that BE’s non-executive directors will be remunerated “in line with similar remuneration levels for other similar sector bodies.”
Of the five directors, two occupy senior management positions in local government; Nicola Yates is City Director, and Max Wide is Director of the Business Change for the council. The Bristol Cable asked them to clarify whether they would be remunerated by the publicly owned company in addition to their salaries as local government officers. The Council did not reply to the question as such, but said the query would be treated as a Freedom of Information request with answers provided within 20 days. When questioned on what the rate of remuneration will be, Peter Haigh declined to comment.
BE is currently in a process of controlled market entry, with a small number of customers on its books and the website accepting registrations of interest. The company will commence open trading in 2016. Time will tell if Bristol Energy can live up to its promises and, if successful in delivering its ambitions, could provide a showcase for other cities across the county.
