Good money after bad? Bristol Energy’s spiralling losses
Four years ago, wholesale prices of gas and electricity were steadily sliding: good for consumers, and also an opening for new energy suppliers.
Established companies, the much-reviled ‘Big 6’, had bought energy on long-term contracts (to match their sales commitments), at prices that were becoming ever less competitive. A new player could use a different strategy: making sales at prices that undercut the Big 6, but buying the energy in small amounts, just a day or so ahead of making deliveries, at ever falling ‘spot’ market prices.
As prices continued to fall, a rash of new suppliers entered the market to exploit the opportunity. At Private Eye, we warned this couldn’t go on indefinitely and that when prices inevitably turned, these new players buying only short-term energy would be hammered in the market.
We’d also encountered local authorities mulling plans to become suppliers on this unrealistic basis. In 2015, for instance, we reported that Cheshire East councillors were asking consultants how a new supplier could “remain permanently below Big 6 energy prices” – a naive aspiration in a world where prices can turn in a matter of weeks, and price wars can last for months. Another council looking to get on board was Bristol.
Tough market
It’s easy to understand elected members’ motivation to offer cheap energy to their residents, based on the idea that if you decide not to pay dividends, top salaries or bonuses, you can cut costs and pass them on as savings. They also assumed residents would quickly switch to ‘their’ local supplier. Unfortunately, life isn’t so simple.
Besides the certainty of price trends reversing, we warned there were other reasons for councils to think twice. For starters, they ignored how tough the energy market is (think someone with no retail experience setting up a general food store in opposition to the big supermarkets). And whereas small private players would simply go bust when costs went up, a publicly-owned supplier could keep burning through further subsidies from taxpayers.
“Small private players will simply go bust when costs go up, but a publicly-owned supplier can keep burning through subsidies from taxpayers”
Energy is a notoriously complex business, too, requiring a wide range of high-end technical and commercial skills. Understandably, local councillors don’t typically have these skills, or even realise what’s involved.
‘We won’t be cheapest!’
Nonetheless, plans continued to be hatched for publicly-owned local energy supply companies – notably in Nottingham, London and (at devolved government level) Scotland, as well as Bristol. We warned against them every time. Whether as a result of our comments or other advice, both London and Scotland reconsidered, and today continue to explore less ambitious energy schemes that don’t involve becoming fully-fledged, licensed energy market players.
Just two – Bristol Energy (BE) and Robin Hood Energy (RHE) in Nottingham – went the whole hog. RHE decided to offer its services to other local authorities on a ‘white label’ basis: the client council sets up a local marketing ‘brand’ (such as Ram Energy in Derby) to attract business in their area, but RHE does all the complex energy market stuff as the licensed supplier in every case.
RHE now has 10 such clients, to whom it pays commission per customer won. However, it’s unclear how financially successful or sustainable this is and RHE has been back to Nottingham council several times for additional financial support.
Bristol Energy hasn’t extended its business model in the same way. It started with a chair and CEO recruited expensively from the ranks of experienced energy industry players, and right from the offset disarmingly stated “we won’t be the cheapest!”. This was made abundantly clear when Bristol City Council tendered for its own energy requirements – and Bristol Energy did not win. For many, this rather negated the whole point of the exercise.
Money down the drain
Like all other new, small players in the sector, Bristol Energy has been hit by rising wholesale energy prices – which started to turn in 2017. The firm’s planned profits are nowhere to be seen.
BE’s 2018-19 reported turnover, £76.2m, was similar to what RHE had achieved 12 months earlier. But there the similarity ends. On headcount, wage bill and directors’ fees, numbers at BE were double that of RHE’s, and its total administrative costs even more. BE’s bloated business model has made cumulative losses of £35 million.
Market conditions have been killing off small private energy suppliers in large numbers recently. But as we warned, council-owned suppliers like Bristol Energy can, and do, simply keep tapping council tax payers for more resources.
Notwithstanding the costs and losses, during 2019 Bristol City Council has increased its ‘investment’ and funding of various kinds to Bristol Energy by more than £9 million, to a total of nearly £38m, blowing away a limit that had earlier been set at £31m.
Good money after bad? With no other obvious natural advantages in the market, when does anyone decide enough’s enough?
‘Old Sparky’ is an energy industry insider and writes a column, Keeping The Lights On, in each issue of Private Eye magazine.
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This article is based on a bunch of myths. The council did give their contract to bristol energy. Author doesn’t know what he’s talking about.
Having worked there, you are both right. BE did originally win the tender to supply much of the Council’s energy, but as the author correctly states, when the time for renewal came they chose a different supplier. Now things have gone full circle and BE are once again the primary supplier to the Council.
We chose Bristol Energy because we assumed that it would give added support to the Council finances
so it is disturbing to say the least to discover council tax payers are now having to support it through raised council tax. We naively assumed most Bristolians would join this venture to help Bristol as a city but this doesn’t appear to have happened!
This article feels extremely one-sided. Having worked in Bristol’s energy sector for a number of years and being a Bristol Energy customer, I’ve read up on this quite a bit. There are a few facts missing. Mainly that Bristol Energy DOES supply the council’s gas and electricity and also purchases green energy from council renewable assets like wind turbines, solar etc through Power Purchase Agreements, offering true 100% renewable energy to customers.
The more Bristolians that supported the company, the better its prospects would be. I don’t know why any Bristolian wouldn’t to be honest.
They will fold before ever becoming profitable leaving bristol tax payers with a huge loss.
Key objective behind the establishment of BE was to help Bristol to tackle social and environmental challenges such as fuel poverty and climate change. As it is loss making, and will continue to be so in the foreseeable future it cannot help at all – the present subsidy should be allocated directly to meet Council objectives. Cognitive dissonance appears to prevail at the Council.
Excellent article, BE is a disaster and the council risk losing the £38 million of TAXPAYERS money. I would not trust the council to run a corner shop let alone this business. If there is anyone with an IQ in double figures the council should cut their losses and run. Following which an inquiry must be held and those responsible for this mess held to account!
Just a thought, I wonder what proportion of the BE customers are resident in the city, those that are not are being subsidised by us local taxpayers. Final point, how come our rubbish local media both radio and TV appear to completely ignore the mess that BE are in and seldom ever report on the situation. Methinks a bit more digging into the affairs of BE is urgently required. Come on Private Eye!.
This is now getting beyond a joke, is there nobody can put the brakes on these idiots. News released today that the council is to spend £350,000 on a battery system which they say will save £16,000 per year on energy. It will take 20+ years to pay back the cost that is if everything works. There is something badly wrong with this council and why is NOBODY speaking up about this gambling with OUR taxes
See: https://www.bbc.co.uk/news/uk-england-bristol-51659192
I’m a big fan of BE. From my house in London, I can get my cheap electricity subsidised by the Bristol tax payers. Thankyou Bristol.
Nice one Robert we are happy to susidise you. Acually to the tune of £34 million as only 12% of bristolians are signed up according to the last available report and £38 million has been thrown at this mess so far
Further to my post of 23/03/20 above this is where the figures came from, article dated January 2020:
https://www.bristolpost.co.uk/news/bristol-news/revealed-fewer-12-per-cent-3702517
Good news!
https://www.bristolpost.co.uk/news/bristol-news/troubleshooter-brought-oversee-sale-bristol-4146480
If and when the sale happens the next step should be legal action in respect of those who threw away £38 million of OUR MONEY. I assume that from the lack of responses here either people do not realise that this site exists or they could NOT CARE LESS, which would be normal for the majority of the citizens.
Norman
It is a pity that Bristol Energy does not state on their current website that they may soon be sold? Bristol Energy (BE) are still taking on new customers, who unaware of any takeover/difficulties, may end up being faced with higher tariff charges from any new owner, which would have made BE to be something less than being a supplier of choice! Of course that would create a vicious circle because with no new customers it would accelerate their downfall. It is a pity than websites are not renewed more often, and even more of a pity that it is not law for future incongruities such as this to be declared.
After all, venders are expected to be informed by home sellers regarding things such as neighbourly disputes, or if the plumbing still has a bit of lead plumbing.