For those of us following the energy market, the recent news that GB Energy – a Preston based small energy company – had ceased trading came as a bit of a shock.
The company blamed rising energy prices and said that as a small supplier, its ability to purchase larger volumes of energy in advance was reduced, thereby fatally damaging its business case. This development should have sent ripples around the supplier side of the energy industry, as it has the potential to be catastrophic to the newly emerging trend of the smaller energy supplier.
The development cruelly demonstrates the fragility of a fledgling – but important - marketplace. Even though their monopoly is slowly being eroded, the Big Six still have something like 85% of the entire UK electricity supply market and this cannot be a good thing. The recent report by the Competition and Markets Authority confirmed that the big six have consistently over charged customers in return for poor levels of service and this has gone on for decades. The emergence of new and different types of company into the market can only be a good thing for both commercial and domestic customers alike.
But the Big Six have such volumes of customers that they can achieve the best wholesale prices when purchasing their supplies of energy and they also have significant generation capacity as well, which delivers another strand of profit into their coffers. These are things the smaller companies can only dream of.
However, new companies are coming forwards and disrupting the norms. There are now over 40 electricity supply companies in the UK, although many are small and the public would probably have never heard of many of them. They are providing better competition for the incumbents and are introducing new and different approaches to electricity supply. This trend has led Ofgem to launch its non-traditional business models initiative to encourage this type of approach.
But let’s not forget that it is tough for the new entrants, as the fate of GB Energy has shown. Notwithstanding this setback, it is essential that the new, smaller companies thrive and provide better competition to the old guard that has failed the public so miserably over the years.
Of course, there is another angle to this too. The new incumbents include two civic energy companies – Robin Hood Energy owned by Nottingham City Council and Bristol Energy, owned by Bristol City Council. They have a different USP to the average energy supply company, having a local, public and social aim in addition to their commercial approach.
These companies have been created by local authorities which have realised the value of electricity to the health and wellbeing of their areas and that have particularly got the message that the only way the full social value of electricity can be achieved is by capturing the ability to supply consumers directly. These are issues examined in a new report published by APSE Energy, that has been written by myself and Peter Walker, entitled Investing in Electricity: Reducing Costs and Increasing Income for Local Authorities. In my next blog I will explain the reasons behind these developments and why many other local authorities are now keen to follow in their footsteps.