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What Victory Energy’s failure means for the ESCO market

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As reported on Current± on 2 September, Portsmouth City Council has decided to wind down its wholly owned energy company Victory Energy.

The council had been trying to find a buyer for the company for some time but had not managed to do so. In the interim period, salaries and associated payments were increasing the council’s liabilities in relation to the venture.

It is a great shame that this has happened. I have blogged on many occasions to say that it is essential that there is a civic alternative to the Big Six and other independent energy providers. In order for there to be such an alternative available, more local authorities have to enter the market.

But it was always the case that there were never going to be dozens of authorities in a position to do so with the commitment required. However, I predicted a regional spread of between half a dozen and a dozen such companies. Work in this direction has stalled.

The market in Scotland has slowed considerably due to the Scottish Government’s announcement that it was considering establishing an ESCO itself. It plainly had no idea what was involved when the political announcement was made. As such this has disappeared into the long grass and the setting of a long stop date of 2021 gave considerable flexibility in the pace of work. In the interim, no local authority is going to commit to the same investment without knowing how this will be affected by the central government equivalent.

Consideration by Scottish authorities was also not helped by the demise of Our Power, a fully licensed ESCO which was set up on a public sector, but slightly different, basis.

In England, the two incumbent companies, Robin Hood Energy and Bristol Energy continue to grow. It appears that if you can establish a company and stick to the business case, the venture will be a success in financial terms.

In Wales there is interest in this area, but a variety of factors, including financial constraints, have slowed the pace.

So it would have been positive if Victory Energy had progressed to enter the market as planned. The council had undertaken all of the preparatory work and was satisfied that the financial model was robust. Then the administration changed from Conservative to Liberal Democrat and a review was initiated. This led to the political decision to scrap the project.

In order to save its investment, which is rumoured to be in the region of £3 million - £4 million, the council set about trying to sell the venture. The problem was that the company – despite being all set up and ready to go – had never traded. Selling a company which is not a going concern was never going to be easy.

Moreover, there must surely have been a very small potential market for the venture. I fail to see why any private sector investor who wanted to acquire an energy company would buy one specifically set up for the public sector approach. The whole attraction of the ESCO to local government is to make it different to the private sector offering. Buying a civic company and seeking to change it into a private sector venture would be like buying a saloon car and then cutting the roof off to make it into a convertible. There were always other private sector energy companies for sale.

So a public sector purchaser might be more likely. But if a public sector body was to buy the venture, they would have to be sure that it would fit their area. Victory, right from its name downwards, is a Portsmouth company set up to work in the Solent area. It is questionable as to whether it would similarly work by just ‘transplanting’ it to another region of the country. As indicated above, there were few potential buyers even without these problems, hence the paucity of bids.

It is a real shame that Victory will not enter the market as originally planned. But what it does show is that any local authority considering entering this market has to be very sure of what it is doing and accept that there are considerable financial risks if the venture does not go ahead or is not successful.

None of this should be taken as a negative. Victory Energy was a victim of its circumstances and does not denote that the business case or social case for the venture was in any way flawed. As we enter deeply uncertain times nationally, perhaps this is just another casualty of politics.

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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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