Having considered what the benefits are for local authorities in establishing energy services companies and the reasons why they would want to do this, it is time to look at the various options that exist.
One of the problems in advising on this area is that often a local authority has already formed a view on which model it would like, without properly looking at the options. As was said right at the start of this series, what matters is what the council wants to achieve from the exercise and that leads to the identification of the right way to get there. Without that strategic approach, it is likely that the wrong option may be pursued.
The holy grail is an ‘all singing, all dancing’ ESCO that does everything. This would normally be a company that might have considerable generating apparatus, such as wind, solar and biomass, based on the authority’s assets. It might also have a full supply licence to sell electricity and gas directly to consumers. It might provide advice and assistance to the public, seeking to educate and influence behaviour. It might also help the community sector to undertake projects around energy use, efficiency or generation. Most importantly, it can be a hub to bring together public, private and community sectors to work together.
It is still the case, however, that many local authorities will not wish to go to the cost and effort of establishing such a vehicle. For those, the white label arrangement has started to become popular. The white label arrangement is where a council seeks to enter into an arrangement with a company which has a supply licence to help it supply electricity to inhabitants of its area. However, there are different types of white label arrangement.
Obviously, many private sector companies are happy to go down this line. The example that springs to mind is Ovo, which has strongly pushed its own white label offering. Under this, the local authority can determine the tariff charged (within certain parameters), although does not make any money from the deal.
Now that Robin Hood Energy and Bristol Energy have been created, there is a civic alternative for a white label deal. It is likely that members in another authority would prefer to enter into an arrangement with a company not run on purely commercial lines, but with a social purpose. And they can do everything that the big six can do.
There are other possibilities too. The Licence Lite arrangement is being progressed by the Greater London Authority and involves a junior supply licence being granted by Ofgem, so that a council can work with a more experienced (and licenced) supply partner. Many consider that the moves by Nottingham and Bristol City councils to establish fully licenced ESCOs have overtaken the Licence Lite route and that less will now choose this way. After many years, the pilot programme has still not launched.
There are also other ways to create an ESCO. Many of those that currently exist are single purpose, i.e. they run a heat network or a particular operation. As such, these might be much smaller and have few staff.
There are no other examples of innovation or joint working between the local government community and other service providers at this stage. In a similar vein to Ofgem’s ‘non-traditional business models’ initiative, it would be good if some different public or private partnerships could emerge.
So which one will be right for an authority? It comes back to what they want to achieve. If the goal is to reduce fuel poverty over a given period, then a supply licence or white label is likely to be required. If this is just about getting messages out there, then just creating a brand might suffice. If a local authority does not want to spend any money or go to too much effort, then its options might be limited, which is why the white label arrangements have been considered attractive. So nothing substantive can be done until that strategic question has been addressed.