Utility Week

UTILITY WEEK | 9TH - 15TH FEBRUARY 2018 | 11 Policy & Regulation Analysis N ottingham has a big fuel poverty problem. According to the govern- ment's most recent breakdown of fuel poverty statistics by local area, 15.8 per cent of households in the East Midlands' biggest city were fuel poor in 2015 – the sixth high- est proportion for any local authority in the country. Tackling this problem by offering afford- able energy supplies is one of the key aims of Robin Hood Energy, which became the first of a new breed of municipal energy compa- nies when it was launched by Nottingham council in September 2015. The intervening period has seen a rash of councils jump on the energy company band- wagon. Bristol Energy has joined Robin Hood to become the second fully licensed munici- pal energy supplier. A host of other councils have set up their own energy companies aer entering into white label arrangements with Robin Hood. These range from Liverpool's Leccy to Angelic Energy in the London bor- ough of Islington – whose customers include Jeremy Corbyn. In addition, the Scottish government, the Greater London Authority and Birmingham and Portsmouth councils are looking to secure a full electricity supply licence. Big losses Besides cutting local customers' bills, the municipal companies set up so far aim to generate a return that will help to compen- sate councils for dwindling government grants. However, on this score, municipal energy companies are not measuring up so far. Last month, Robin Hood revealed it made a £7.6 million loss in the year ending March 2017. Together with the previous year's losses, the council-owned company is now £10.8 million out of pocket since it was set up. Bristol Energy has also reported heavy losses and is not set to break even until 2021. Ryan Thomson is a partner at consul- tancy Baringa Partners, which has advised a number of councils on their energy company plans. He says they shouldn't be judged yet on the yardstick of whether they are making a profit. "Most new entrants are looking at a four- to five-year payback even if they are running very efficient operations," he tells Utility Week. "I wouldn't expect anybody to break even in the first three years: anything less than three years in the current market conditions is very optimistic." Lower prices Robin Hood has said it is on course to break even around March, when it is due to lodge its next results. Councillor Steve Battlemuch, the company's chairman, says: "To be on course in two-and-a-half years is pretty good going." And as Robin Hood's customer base continues to grow, its costs will come down, he predicts. "The bigger we are, ultimately the lower the prices we can deliver." Birmingham council set up the world's first municipal gas and water utilities in the late 19th century, ushering in an era when councils dramatically improved the quality of these essential services across the UK. However, the Conservative council has pledged to halt the Labour-run authority's plans to establish an energy supply com- pany if it regains control of the council at May's local government elections. Councillor Meirion Jenkins, a member of the council's shadow cabinet, argues that the proposal is wrong in both principle and practice. "I don't think councils should be in the business of selling utilities when even the companies that do it find it a challenge," says the Tory councillor. "The le will say that in the early days of Birmingham, it was the public sector that brought key utilities to the city, but it was a very different world. When nobody had water or electricity you could take a view that it was appropriate for the state to pump prime that activity, but now we have a large and complex energy market." Doing a power of good? Are council-backed energy companies the answer to solving the fuel poverty crisis, or does wanting to generate a return for the local authority confuse their objectives? David Blackman investigates. And against the backdrop of recent energy supply company bankruptcies, he doubts whether it is a good idea for local government to launch new propositions into a crowded market. Customer appeal Thomson says the new municipal energy companies will face challenges standing out. "It's a low-margin business and getting harder to differentiate yourself." However, Peter Haigh, managing direc- tor of Bristol Energy, argues that the not- for-profit nature of his company's business appeals to customers – and not just those from the company's home city. "An awful lot of customers warm to the message. It's important to them that the benefit is going to a community, even if not their community." Battlemuch agrees: "We are here for the long term and providing a not-for-profit alter- native. It's just us and Bristol trying to do that: the rest of the market is pretty much for profit." But Jenkins is not convinced that setting up an energy supply company is the best way to help those in fuel poverty. "If the objective is to relieve fuel poverty there are much better ways of doing that than setting up a Birmingham energy company," he says, suggesting it would be a better idea to offer subsidies to hard-up customers. Added to this, he warns that councils run the danger of "confused objectives": while aiming to relieve fuel poverty, the new com- panies are seeking to generate a return for their local authority masters. In the long run, though, council-owned energy companies could really prove their value by backing projects such as heat net- works, which are difficult for private com- panies working on shorter investment time horizons, argues Dr Alastair Martin, chief strategy officer at demand response aggrega- tor Flexitricity. He says: "The value in com- munity ownership and engagement gets stronger when they are involved in common good infrastructure." It's a vision that Birmingham's Victorian city fathers would recognise. "The Scottish government, the Greater London Authority and Birmingham and Portsmouth councils are looking to secure a full electricity supply licence"

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