Reprinted from Monday October 10 2016
Business Working life The David and Goliath struggle over national transfer of power
GETTY IMAGES; NEIL HALL FOR THE TIMES GOING FOR GROWTH Josephine Moulds reports on the challenges facing Britain’s upstart energy suppliers as they seek to attract customers from the Big Six
f you search for an energy Gudka, a former energy trader at deal on a price comparison Barclays, launched Bulb in August website, the chances are last year, offering 100 per cent several unfamiliar names will renewable electricity. Its energy crop up. Long-dominated by sources include the weird and British Gas, E.ON, EDF, SSE, wonderful: 10 per cent of its gas ScottishPower and Npower, there comes from pig slurry. hasI been a ood of entrants to the Another selling point for Bulb, market, with 14 new suppliers in the which has cut its prices six times in past year. just over a year, is its claim that it Down from 99 per cent in 2012, will bring prices down in line with the so-called Big Six still have an wholesale energy prices quicker 85 per cent share of the market, but than its rivals, tackling a familiar they are haemorrhaging customers criticism of the Big Six. “We review at a rate of 120,000 a month. our prices every single day,” Mr Luke Watson is one of those Wood says. “If there is a signi cant trying to upset the energy market’s movement, we will pass those status quo. The former Royal Navy savings to customers; or if prices submariner set up GB Energy at have gone up then we might have to the end of 2014 with the nancial increase our prices.” backing of Brett Trevalyan. Complexity is not the only hurdle In its rst year, the company that new entrants have to clear. achieved sales of £22 million, which Fluctuations in energy prices can are expected to increase to almost pose a particular challenge to small £110 million this year. GB Energy energy suppliers. has 170,000 customers but has Greg Jackson, a serial A tenth of Bulb Energy’s gas comes from pig slurry. Octopus Energy, set up by Greg Jackson, below, aims to beat the Big Six by being lean and internet based kept staff numbers down to 22 by entrepreneur, set up Octopus Energy outsourcing its customer service to a in April this year, with the backing businesses: “They claim they are contact centre in Nottinghamshire. of Octopus Investments, a fund collecting all the tariffs in the How‘supplier inabox’ To enter this notoriously complex manager and venture capital rm. market, but really they are just kick-startedarevolution market, Mr Watson’s company is He says that nancial heft is selling whatever product gets them one of several that have bought a crucial in this market. “Energy as a the most commission. It was not a change in regulations pre-accredited, pre-licensed energy commodity has prices that can vary “As a consumer, you take for so much as a clever new product supply company “off the shelf” from enormously. Last week the price granted the protections that you that prompted the flood of new Utiligroup, a software company. of electricity in the market went are given. In the small and medium- entrants into the energy market. up from £40 per megawatt hour sized business sector, there is no In 2009, Utiligroup, a software to £1,000 per megawatt hour, only protection for those companies.” company based in Chorley, ‘It’s suchafragmented for an hour or so. You need to be Energy watchdog Ofgem said Lancashire, helped Ovo Energy nancially well-backed to be able to that a recent investigation into through the desperately complex marketplace and there handle that.” the market by the Competition process to become a domestic Like its rivals, Octopus aims to and Markets Authority had energy supplier. aresomanymoving beat the Big Six by remaining a found inconclusive evidence of Utiligroup, which was founded by parts and suppliers’ lean, internet-based operation. malpractice by brokers, or “third- veterans of the energy market, “The big energy companies have party intermediaries”, when it spotted a bigger opportunity in the He says Utiligroup does exercise enormous legacy systems. They are came to mis-selling to the smallest process. Now it and other some discretion over who it sells built around the idea of call centres, businesses. “We will continue to consultancies package up and sell its energy companies to. Before lots of heavyweight 20-year-old monitor TPI behaviour,” it says. ready-made energy suppliers that setting up GB Energy, Mr Watson technology.” Mr Fitzpatrick, who launched have already jumped through many ran a consultancy that helped As a private company, Octopus Ovo before it was possible to buy of the regulatory hoops. homes to improve their energy does not have to deliver shareholder readymade energy supply companies, Utiligroup sets up a shell efficiency, which he says reassured returns and Mr Jackson says it is says that it is now too easy for start- company and obtains a licence for the software group of his aiming for a “small single-digit ups to enter the market. that company to supply electricity credentials. “We had to convince per cent” pro t margin as it races “A lot of people who have entered and gas. It also gives it the Utiligroup that we did in fact have to build a big customer base. That recently have underestimated how necessary software and services to an idea,” he adds. means he can keep prices low dif cult it is. It’s a very complicated deal with the complex data transfer “The fact that I had a bit of an beyond the rst year, when energy business to get right.” required to manage electricity and energy background helped. I had companies usually lift their rates. He is concerned about the losses gas customers, and helps it through been involved on the other side of Octopus, Bulb and GB Energy all for customers if a company folds. the initial stages of industry the fence with energy and funding. supply small businesses and say that Ofgem began a consultation in June accreditation required by Ofgem, Utiligroup have a duty of care this is an area where they can make to clarify the consumer protection which proves the new company can to ensure that they are not just a particular difference on price. in place if that happens. It says that manage those data flows. handing over a company to any Customer service is another area customers will continue to have an It offers this “supplier in a box” to Tom, Dick or Harry.” where they aim to beat the Big Six. energy supply if their supplier goes entrepreneurs and other market Nevertheless, the biggest Having launched in 2009, Ovo out of business and it will limit any entrants such as local councils, challenge of entering the market now has almost 700,000 customers disruption caused. which are setting up not-for-profit has been getting to know the inner and announced pre-tax pro ts of Mr Fitzpatrick says: “If energy energy companies. The new workings of a complex industry. £30million in the rst half of this year. companies start to go out of supplier must then go through a “It is such a fragmented Stephen Fitzpatrick, its chief business and customers lose probationary period serving a marketplace and there are so many executive, says that keeping consistent money, someone should be asking limited number of customers, where moving parts and so many suppliers levels of customer service is the questions about how these people it is monitored to ensure thatitis involved. Actually understanding biggest challenge when scaling up. got licences.” functioningasit should. where a new supplier ts within the “It’s very easy to keep the Others argue that tighter MarkCoyle, of Utiligroup, whole industry in relation to the customer in mind when you’re very restrictions would make the market estimates it used to cost about likes of National Grid, and how you small, but as you grow and the team less competitive. £2millionand take about 18 months trade . . . it is a bit of a nightmare,” gets bigger, it’s much more dif cult Steve Peters, managing director to setupan energy business.He Mr Watson says. to maintain that culture of allowing of Utiliteam, says: “If we and our says Utiligroup has “pared down to Utiligroup is not alone. Bulb people the freedom to treat competitors hadn’t been creating the bone” anyup-front costs and Energy, another new entrant, opted customers as individuals, rather than offthe- shelf supply companies, then has cutthe timescale to six months. for a different “off the shelf” option everything being dictated by policy.” the market wouldn’t be as vibrant Thenew energy suppliers then pay from the rival Utiliteam consultancy. Mr Wood explains the problem as it is now. If you start putting in for their services based on the Hayden Wood, a former of rogue brokers mis-selling further checks and balances, that number of customers theyhave. management consultant, and Amit energy to small and medium-sized could hurt competition.”
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