Fuel poverty continues across the UK and customers feel they have a lack of choice from the energy industry.
Councils have been looking at various models to tackle this from collective switching to energy efficiency measures and looking at self-provision or a white label or licence lite route.
The number of councils looking at the provision of power and utilities is increasing with a number looking at how the routes available to achieve sustainable pricing.
One of the key considerations is the balance of risk involved in entering into such arrangements and the goal of creating a company which, at no cost to the taxpayer, enables councils to sell gas and electricity to its residents at lower rates.
The 2015 Paris Agreement has intensified the desire to de-carbonise and the UK energy sector is shifting towards greener energies offered by renewable technologies such as solar and wind. However, the reductions in the feed-in tariff rates and removal of solar incentives have had an impact.
Local authorities have the ability, by taking an active role in the energy market, to both support renewable energy and find ways of helping deal with fuel poverty amongst their residents.
The different structures and forms that local authorities engage comprise the following:
Fully licenced operator
The local authority applies to Ofgem to become a gas and electricity energy supplier. Although that process is fairly straightforward, the supplier has to comply with a number of industry codes. The systems and staff required to ensure market compliance and the knowledge to set costs, tariff prices and manage market risk impose a significant burden on the local authority in terms of cost, timing and skill set.
Nottingham City Council’s Robin Hood Energy was the first local authority owned energy supply company, established as a not-for-profit company. It offers a cheaper tariff for Nottingham City Council residents, no exit fees and a commitment to low tariffs and tackling fuel poverty. Following this route has enabled Robin Hood Energy to tailor its offering to the needs of its local community.
Bristol Energy serves its customers in Bristol and across the UK. In January this year, it announced it has received a €1.9m grant from the European Investment Bank and the European Commission to fund renewable energy in partnership with Plymouth Council.
White Label Provider
This enables a local authority, as a white label, to partner with an existing supplier. This will be a contractual arrangement enabling the local authority to negotiate the tariff with the supplier and bespoke the supply to some extent. The supplier will receive the revenue and the white label a small commission. This route is particularly attractive in improving competitiveness but making use of the partner’s energy licence together with the relevant statutory and compliance infrastructure. It also enables the white label party to offer gas and electricity under its own brand. Examples of local authorities who have done this include Wirral Energy, Cheshire East (FairerPower) (Ovo communities), Liverpool City Council – The Leccy, and Leicester City Council, Leeds – White Rose Energy, a number of whom have signed white label agreements with Robin Hood Energy.
Islington Council has launched London’s first municipally owned energy company for more than a century, Angelic Energy, which is a white label arrangement with Robin Hood Energy.
The local authority taking on the role of an electricity supplier with an existing senior supplier. The local authority applies to Ofgem for an electricity only licence and has to comply with the terms of the licence but not the industry codes. These will be complied with by the senior supplier.
Greater London Authority has entered into a licence lite.
Useful if the local authority wants to take energy from a renewable supplier not in its immediate locality. This will involve entering into a power purchase agreement with a third party supplier to manage and effectively balance supply and demand. The third party supplier takes responsibility for transferring energy across the public network. Once the renewable supplier and the local authority have agreed a price, the supplier will usually be tendered to manage the sleeving/balancing process. That third party will charge a fee covering network charges, imbalance, payments, top-ups and a service fee.
Warrington Borough Council is presently in the process of entering into such an arrangement with regard to supplying energy from solar power.
Useful if the demand is to power 2000-3000 homes. A contract will be entered into between the local authority and a licenced supplier for metre registration and use of the distribution network.
Private wire supply
This allows an energy generator to sell direct to neighbouring premises using a private infrastructure instead of a network. Clearly, physical distance, economic viability, connection routes, cost of developing the route and access to infrastructure and technology are all risks.
Examples include Gateshead Council whose scheme takes energy from a gas-fired combined heat and power (“CHP”) centre. The CHP can generate electricity whilst capturing and supplying waste heat to buildings. The initial scheme supplies energies to buildings, some of which also receive heat and power, and is funded and owned by the Council and operated through its new energy services company. The system aims to create new business growth in Gateshead by offering low cost low carbon heat and power to new commercial developments and reduce Gateshead’s carbon footprint with half the carbon emissions of grid supply energy. It also will assist in reducing fuel poverty.
Although, as one sees from above, a large number of local authorities are embracing providing energy and looking at renewable sources and reduction of carbon emissions, there have been a couple of energy companies which have been scrapped following further analysis of the business plan and financial commitment.
It was decided that Victory Energy Supply Ltd, set up by Portsmouth City Council, would be scrapped as, following a review of the revised business case, the Council decided the energy company was no longer economically viable. Likewise, Birmingham City Council has decided not to proceed with its energy company for similar reasons. This shows the importance of local authorities assessing thoroughly the viability of any proposed arrangements before entering into them and keeping this under review.