Utility Week

14 | 26TH OCTOBER - 1ST NOVEMBER 2018 | UTILITY WEEK Policy & Regulation there is "definitely still appetite" in the market, despite Portsmouth City Council volte-face. "A year or two ago, it felt like any council who did not have a supply company would be an oddity, now people are weighing it up much more carefully," says Thomson. "It is not a sure thing. Robin Hood Energy and Bristol Energy could still be a couple of years away from turning a profit and no longer be a drag on council finances." Regarding the debate about white labels versus full-blown energy service companies, he says: "White labels sit closer to other affiliation deals that councils may have done previously. In terms of getting it through a council chamber, a white label deal will defi- nitely be easier and does not feel as risky. "If you are going down the white label route, you need to think about how you are protecting the brand. If you start having significant issues with your partner, then how do you back out? If the complaints go through the roof, you could be dealing with the headlines. "There's also a question around how you attract customers who would not otherwise switch. There's more than enough competi- tion in the switching market already, but it's the 60 per cent who have not switched that local authority companies could target. Cus- tomers could feel more attracted to a local authority brand." In terms of what drives a local authority to think about entering the energy business in the first place, Grant Thornton's head of energy and environment, Mike Read, says it can be down to a number of issues, includ- ing wanting to tackle fuel poverty, generate income or a desire to increase the amount of renewable energy used in their area. "There are various angles and one of the challenges is that most of them are mutually exclusive," explains Read. "If you want to tackle fuel poverty, then the chances are you will not be generating massive dividends for the local authority. It would be incredibly challenging to offer low- cost solutions and get a return. "The energy supply market is incred- ibly competitive and unless there is a clear rationale, you need to recognise that you might not be able to do it." Read points to the example of the Scot- tish government, which has cited a desire to tackle fuel poverty as one of the main rea- sons why it is considering creating a public energy company north of the border. "The Scottish government has identified a real reticence in Scotland to switch suppli- ers," he adds. "They think that in setting up Local authorities urged to help low-carbon transition UK Power Networks (UKPN) has launched a guide on "future energy" for local authorities, encouraging them to "embrace a low-carbon future". The distribution network operator has teamed up with UK100 – a network of local government leaders – to send elected coun- cillors and council finance and sustainability officers the guide, which aims to show how the move to a decentralised and decarbon- ised energy system offers new growth and job opportunities to local communities and helps tackle climate change. In the guide, the company provides tips and information to support local authorities to embrace new technologies – such as elec- tric vehicles – which support the transition to a low-carbon economy and understand how they can play a role in "future energy". UKPN smart grid manager Lynne McDon- ald said: "UKPN wants to help local authori- ties embrace a low-carbon future and plan to meet rising demand in what is an energy revolution. The way energy is generated, dis- tributed and used is rapidly changing and we want to help local authorities make the most of the opportunities this creates. "Working alongside UK100 we are doing everything possible to explain to local authorities how they can potentially generate income and save money by adopting new technologies to make the most of local energy in their communities." UK100 director Polly Billington said: "Local leaders know their communities best and have an interest in ensuring the transition to a clean, climate-friendly energy system creates benefits for their residents and businesses. "More and more local leaders have ambi- tions to see solar and wind generation power their communities, in a way that saves money and generates income for their local author- ity, the community and local businesses. "Electricity generation, battery storage, the arrival of electric vehicles and savvier and smarter ways to heat and power our homes and workplaces will transform our country over the next few years, but local leaders will be crucial to making sure this happens in a way that benefits the people they represent. "The guide for local government targets all levels of knowledge, from energy officers to the elected councillors getting to grips with rapid change. It is designed to help those making the decisions understand more about what that can mean for their community." Analysis continued from previous page a trusted brand, they will encourage a debate about switching, and you can also develop that brand into other energy efficiency activi- ties as well." Fiscal flexibility While councils remain under enormous financial pressure, one recent development may offer significant opportunities for energy companies looking to expand into the local authority market. Theresa May's recent announcement that the government plans to scrap the cap on what councils can borrow against their housing revenue to build new homes might not seem significant, but it could mean many more local authorities start building homes. A large number of councils have already set up their own housing companies and if they do still build homes, then they may also look for ways to help residents insulate or power these new properties. Read says this could help the burgeoning heat network market and also drive demand for local energy companies at the same time. "It will be the local authorities who see the bigger picture who will take this for- ward," says Read. "It will be the councils who have bought into their greater role as an enabler, who are setting up heat networks or housing companies." Make no mistake, the need for councils to make massive budget cuts and the highly competitive nature of energy markets do not make for easy bedfellows. It would be a brave council leader who signed off a multi- million-pound investment for a fully fledged energy service company in the hope of mak- ing a fast buck. But if that council leader was serious about helping thousands of residents out of fuel poverty and making a long-term commitment to the local community, then it could make a lot of sense. Ironically, the key to future energy com- panies could well be in the hands of the local authority housing market, which is also hop- ing to make a comeback. Don't write either of them off quite yet. A year or two ago, it felt like any council who did not have a supply company would be an oddity, now people are weighing it up much more carefully." RYAN THOMSON, PARTNER, BARINGA

• Cover