In November, Social Energy announced it was closing its supply side as gas prices continued to sit at record high levels. It was one of almost 30 energy suppliers to close in 2021 amid an energy crisis that has trapped many suppliers between the price cap and the wholesale cost of energy.
With the energy market set to remain tight throughout winter, Current± caught up Social Energy co-founder Julian Wiley to discuss the conditions that led to the supply side shuttering, and what the company will look like going forwards.
Could you tell me the core reasons for the supply side shuttering?
We spent five years developing the business, amongst that maybe a year or two of testing, and then we've been commercialising the business, we can’t take the risk that’s emerging from being a supplier. Yet we had to become a supplier – we did go to other suppliers to try to partner them in order to prove the concept and nobody really got it. Everybody seems to know about demand side response now, but when we first started it was a dark art, and nobody had a clue.
So we took the decision to become a utility to prove [our model], and we've proved it.
It is illogical to us as business people to have to buy at £300 per therm of gas, and we have to sell it at £50 pounds. We were looking at a huge loss over the next four months. We don't need to be a utility, we've already spent a lot of money developing the company and now we need channel partners to scale. So particularly the Australian business is flying.
Funding the Australian growth is hard. So the decision was, do we use millions to fund the growth of the business in Australia and the UK? Or do we lose out on supplying gas and electricity when it is not our core focus? So, it was a very simple decision for us really, as a commercial board.
It was cheaper to exit from being a supplier than take the loss. I'm not going to say anything wrong about Ofgem, but there is something seriously wrong with a market that puts you in that predicament.
I'm not an expert, but I realise that some of the generators are making billions on one side and showing a loss on the other. Ofgem effectively said, 'Well, we want lots of competition, all you small guys come in.' And to be honest, it's a little bit of a mug's game being a supplier in a market like that.
So, exiting was a simple commercial decision for our business. We haven't lost any employees, the business is growing and we've proved the model.
Do you think there should have been more checks and balances put in place before small suppliers enter the market?
It's not really a market because a market is buying and selling and having profit. So when you bring regulation in and it goes adverse against the market, if you're affecting one side, you have to help on the other.
Being a supplier wasn't really our focus, so it didn't really affect us. We're less battle hit than anybody else, because a lot of our customers energy is made themselves, on their own roof, using their own battery and so use less grid energy.
There's some really great new energy models coming around. But when they're loss making, and you've got very big companies [with these models] – they're not monopolies, but they are crowding out the competition – it is unfair competition. And I think if I was one of the new guys, not particularly ourselves, but one of the other small operators, I'd feel it was unfair what had happened to me in the sector.
I'm surprised at how flexible and open to change the National Grid, Ofgem, and BEIS are. They’ve all very open about getting this decarbonising and decentralising energy done. It's not an easy task regulating the transition of energy, I wouldn't like to do it. But yes, they should have at least come to the energy suppliers and said, 'We can't put the price of energy up for the public, I understand that. It's bad for everybody. So here's an interest free loan, you'll be able to make money back next year'. That would have been the right opinion or right thing to do in my opinion. But yeah, no bad mouthing going on.
So what does Social Energy look like now the supply side has closed?
Nothing's changed really. The business was all about solar and battery storage, we've got the Energy Saving Trust to validate that we reduce energy bills by 70%. You've got to spend the money, but it's still a very good return on investment, and with energy bills as they are now, it's an exceptional return on investment, to the point that solar is in short supply, demand is outstripping supply.
We are selling direct to consumers in Australia, and that’s very successful. We need funding there to grow, so it's profitable for us, but without the utility it will be profitable, much quicker. And we're going to follow that model in the UK and go direct to consumer white labelling for other larger companies in the UK that are looking to be in it. Or if they're already in the energy market, and they want a distributed, decentralised energy model. We've got the software for them, especially housing associations.