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Image: Bristol City Council.
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Lessons from local authority energy companies

Image: Bristol City Council.

Over past few weeks, the first local authority owned energy services company, Robin Hood Energy, has been sold by the Council to Centrica for an undisclosed sum. The second such company created by Bristol has also moved on both its domestic and commercial customers, believing the market to be impossible. Where does this leave the notion that local government has a role to play in local energy supply?

It all started so well. Nottingham City Council is one of the pioneers of local authority green programmes. It has enjoyed success in many different fields, such as district heating networks, renewable energy (particularly solar PV), sustainable transport via a tram system in the City and a push on sustainable building.

Nottingham as always displayed political courage, evidenced by its introduction of the first workplace parking scheme in the UK. Charging those developing new commercial buildings in the city for each parking space included was predicted to be political suicide but was pushed through by Members and is now held out as a beacon for the future.

Robin Hood Energy was but one example of this. Doing something that had never been done before and which many believed impossible was a big challenge. This time however it did not end so well. The problem is the inherent bias of the electricity supply market towards the established and bigger players. Everyone criticises the so called ‘Big Six’ but how will this change if it becomes impossible to establish viable competition?

The aim was simple: focus on fuel poverty and do something practical about it. One of the three key areas that causes fuel poverty is the amount people pay for their electricity and gas. Control the supply and you can influence this outcome. But the supply market is so volatile and works off such tight margins that having a small company, with no customers to start with and seeking to make inroads into a difficult market is a big ask. Robin Hood actually did quite well at this and developed a strong customer base on its unique offering as a not for profit entity.

But cash kills companies and the requirement to purchase energy well in advance in order to secure the best prices is really problematic for small entrants to the market. This fact and a downturn in market prices caused the Council to have to meet losses that had not been predicted. In addition to this, and at the same time, local government had to endure a period of continual austerity lasting for a number of years, with unprecedented budget cuts causing real pain in the continuity of service provision. Ultimately, this spelt the end for the Council’s ownership of this particular venture. What is surprising is who the Council sold the company to, effectively being one of the group of companies Robin Hood Energy was set up to disrupt in the first place.

It is a similar story for Bristol Energy. Forged from a slightly different purpose, the company also made inroads into its local market and did some good work. But the costs of the company were high and action soon had to be taken to reduce them. Even then, the cash calls kept on coming and, again, the time came where the Council felt it had no choice but to bail out of the venture.

Bristol will attract more credit from the local government community in the fact of its disposal of Bristol Energy to a company with shared values. Together Energy, which is now part owned by Warrington Borough Council, has as its aim the eradication of fuel poverty and the operation of its enterprise on good social values, but at low costs and tight margins. If so, it will no doubt carry on the work of its predecessor, whereas it must be unlikely that this will happen for Robin Hood’s customers.

Two other cases complete this sorry tale. Our Power was created in Scotland, this time with a different purpose again, namely to focus primarily on housing voids. It was owned by social housing providers, community organisations and local authorities, but despite being given over £2m by the Scottish Government, faced a cash call that it could not meet in 2019 and went out of business as a result.

Victory Energy was the fully licensed energy services company established by Portsmouth Council, but that particular plane failed to get off the runway with the change in administration of the Council and a political decision that the risk could not be taken. Its subsequent attempts to sell the company it had set up (but which had not yet traded) proved fruitless.

Four chances to make a success of a civic energy company and 4-0 to the opposition. It is not so much that any of these ventures did anything wrong, but history may reveal that they were merely wrong for their time. The notion of civic involvement in energy supply is perfectly legitimate and ultimately possible, but the playing field has to be level – and it wasn’t in this instance.

Ofgem’s response to small companies going bust is to tighten up the rules of entry - precisely the opposite of what is required to further open up the market and provide proper competition for the big six. There are now movements to create such provision in different ways, such as the new Local Electricity Bill, a Private Members Bill introduced earlier this year that is being promoted by Power for People and is supported by many MPs.

This scenario also demonstrates a critical weakness of local government: the notion to work alone rather than together. At the time that the first moves towards energy service companies (ESCOs) were being made, I argued the way to do this was not one Local Authority leading the charge and taking all the risk / reward, but a group effort. What was really required was a national local government ESCO, owned jointly by all of the local authorities in the UK, with equal rights, equal rewards and with each bearing only a small share of the risks. Think how many customers the efforts of over 450 local councils actively focussing on marketing their own areas would have delivered?

The rough and tumble of the wholesale markets would have been different then too, with the sheer scale of the operation matching the biggest players with their inherent advantages. Of course, the company could be run by private sector professionals and on a commercial basis, but with proper regard to public sector values and ensuring that the most vulnerable in society are not abused.

It would also have been easier then to link the supply element to other parts of the energy paradigm, such as renewable energy generation, the social agenda and climate change issues, latterly emerging into climate emergency plans.

It is, of course, not the only example of local authorities not grasping this potential advantage. Local authorities procure billions of pounds of supplies each year, much of it individually, thereby failing to achieve the economies of scale that are so obviously possible.

In answer to the question as to where this leaves local authorities now, I say they will be back – but at a more favourable time. The issues remain pressing, the market remains receptive to a different approach and as the energy market catapults into a digital, service based future there has to be a role for such provision to successfully re-emerge in the future.

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Contributer

Stephen Cirell

Stephen Cirell is an independent consultant specialising in local authority renewable energy projects. He is author of ‘A Guide to Solar PV Projects in Local Government’.

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