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Utility Week 7th August 2015

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10 | 7TH - 13TH AUGUST 2015 | UTILITY WEEK Interview the business. Pulling out her phone to make a quick calculation, she confirms this will be in the order of £400,000 next year. That said, Davenport insists that Good Energy has a "balanced" view of the develop- ment since the negative effects on generation will be absorbed by continued competitive offerings in business and domestic supply. Shrugging, she concludes that it's all part of a process to make the industry – "not just the renewables industry, the whole bloody industry" – leaner and meaner for a future she expects to be defined by declining demand. It's a trend which has already made itself felt in Good Energy's financial reports. While generation revenues were strong in 2014 and the business grew by 43 per cent with assertive customer acquisition, a long spell of warm weather meant that demand for energy declined by around 10 per cent and profits (before tax and excep- tional items) were 33 per cent down on the previous year, at £2.2 million. This experience was mirrored in reports from other suppliers, Davenport points out, and it is something that they are all going to have to come to terms with. "One of the interesting consequences of climate change is that we are going to see more extreme weather but also warmer weather at certain points," she says. This lays down a big challenge for energy suppliers to get better at long-term weather forecasting "so we can at least look to manage our profitability over the years and understand when we are likely to have a low energy usage year". Having defined the likely parameters and pace of change in demand patterns, innovative and tenacious suppliers will then need to fundamentally rethink accepted business models, moving to become lighter on expensive assets and more proactive on customer engagement. Davenport is determined Good Energy will be at the vanguard of this shi, embracing the opportunities offered by decentralised generation, energy storage and energy efficiency so that "credit is more spread out" across the system and individuals have a bigger role. She imagines a business model whereby "I have to raise less money, but I can supply more people and potentially look at other things I can provide them – like insurance for their house related to their solar panels, temperature control… general control over all of their homes. Look at the value added there and it becomes a much more consumer-focused approach, rather than just the traditional big power stations and big levers." It's a revolutionary vision for the UK energy market, and one which Davenport wants to realise with impetu- ous speed by industry standards. To this end, Good Energy is working hard on getting a range of ground- breaking energy trading and service products to market. In March this year, Good Energy revealed a first-of-a- kind renewables trading platform that promotes direct contracting between generators and consumers. Piclo has been described as both eBay for energy and Uber for energy by commentators and Davenport hopes it will prove the feasibility of a "supplier-light" delivery system. The platform is currently gathering participants for a trial this autumn – slightly behind schedule due to difficulties in fine-tuning the legal framework for contracts – and is keen to attract about 25 participants on either side of the table to prove the system works. At the moment, customer volunteers are proving harder to secure than generators. Another focus for innovation is energy storage. Good Energy is conducting trials with Moixa in a Department of Energy and Climate Change-funded project to uncover the poten- tial of their domestic-scale batteries to help balance variability in renewable energy gen- eration and promote energy efficiency. Daven- port hopes to have a storage proposition ready for market by April next year. There's no clear idea what this offering might look like yet, but she is optimistic that a new com- mercial director – due to join Good Energy in September – and a market appetite whetted by Tesla-related hype, will create a favourable environment for it. But perhaps one of the biggest challenges that Good Energy will have to overcome to achieve the disruption it aspires to will be the complex regulation of the electricity retail market, which is currently under intense scrutiny from the Competition and Markets Authority (CMA). Davenport's response to the preliminary outcomes from this inquiry is broadly positive. She welcomes the decision to not recommend breaking up the big six, which she says would have been a "distraction", and she acknowledges that it's good to see formal pressure com- ing down on incumbents to address "sticky" customers on standard variable tariffs – although she adds that this was hardly a revelation and is not convinced that a cap is the right course of action to address it. What she's most pleased by, however, is the attention the CMA has drawn to the obscure complexity of the sector's regulation and the recognition that this is a "significant issue in this market – for everybody". "We did some analysis and figured there's about 11,000 pages of code that you have to comply with to be part of this marketplace," she says. "Also, a lot of those codes were put in before the Ark – pre-meter, during pri- vatisation – and are really not fit for purpose in the mar- ket of today." Retrospective tweaks that have been made over the years have only achieved unintended consequences, says Davenport, and today represent a major hurdle to innovation, and to new entrants. She implies it is time for a systematic review of the codes and a move towards principles-based, rather than prescriptive, regulation that is based in more than rhetoric. For Ofgem, this – in part – means a new approach is needed to the way guidance and interpretation of indus- try codes are issued, says Davenport. "There needs to be a lot more clarity when things are put in place around what they mean and how they should be interpreted. "So, when you go to Ofgem today and ask them about something – they won't interpret it for you – they tell you to go and get a lawyer to interpret it for you… the regu- lator needs to get over thinking that every time it gives some advice it's going to be sued. Because as it stands [the codes] are so complex that there are only a few com- panies who can afford to have enough people to be able to interpret them all." Davenport says Good Energy's greatest achievement has been its ability to weather this inhospitable environ- ment for small energy suppliers for more than 15 years and she is proud of the growth it has achieved – now boasting a market capitalisation of c£33 million. But looking forward, she is even more ambitious: "We want to be much bigger," she says, mentioning the potential for a five-fold increase in size over the next few years. "We want to prove that Good Energy is a blueprint for how the energy market could work and we want to demonstrate that at scale." "There's about 11,000 pages of code that you have to comply with to be part of this marketplace"

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