Owning their own energy companies, and possibly generating their own power, can allow municipal authorities to create revenue at a time when they are struggling to find ways of responding to budget cuts.
By Amy Marshall, KPMG in the UK
Conditions are ripe for the establishment of municipal energy companies. Consumer trust in the UK’s largest1 energy providers is at an all-time low and people are seeking alternatives.2 Meanwhile, central governments are encouraging municipal authorities to become more commercial and find alternate, sustainable sources of funding. I believe providing energy could be the answer.
A few large providers still dominate the UK energy supply market, but the influence of smaller suppliers is growing fast. In the last 2 years, small and medium sized suppliers have increased their share of the market from 2 percent to nearly 10 percent3. Local authorities are moving into this space with Nottingham and Bristol actively setting up their own independent municipal energy companies, and others such as Cheshire doing so in close conjunction with smaller energy suppliers with more set to follow.
Although some local companies will be ‘supply only,’ others can offset some of their costs by generating their own power. This also allows them to invest in renewables and green energy, which is another point of differentiation from many of the major suppliers. Energy generation can also help them compete on cost.
Having a local energy company appeals to those who seek individual, personalized services and areas with a strong identity like Bristol, known for being slightly alternative with strong community links, are well placed to build on that local feeling.
Which?, a UK-based consumer advocacy group, released a survey4 of public satisfaction that rated smaller more sustainable providers Ecotricity and Good Energy top for customer service. Municipal energy companies have the potential to tap into this sentiment by encouraging dissatisfied customers to switch to local energy providers.
City leaders thinking of setting up their own energy company need to decide what demographic they are targeting – whether it is to their general population or to specific types of energy user. This then allows them to target their marketing to those customers who have a strong local identity and are more likely to engage with their services.
The UK government and EU legislation are actively encouraging a shift to a community energy strategy to support the creation of new kinds of energy companies. This support takes the form of easing regulatory barriers, rather than subsidies, but this is still valuable in the complex UK energy market and the recent proliferation of new energy companies and energy service companies – municipal and otherwise – would suggest that it has worked.
High start-up costs have been the downfall of many small energy companies. Setting up processes, establishing a team, buying energy and finding customers all require significant investment. Small municipal companies can focus on more distributed infrastructure, which can be invested in progressively, rather than requiring large investments up front. Plus, a municipal energy company, as in Bristol, has the advantage of backing from the local authority, which can help enormously with these initial cash flow requirements.
Owning their own energy companies, and possibly generating their own power, can allow municipal authorities to create revenue at a time when they are struggling to find ways of responding to budget cuts. It also can make the city more resilient to external pressure, especially where there is a strategy of generating energy from renewables, waste or other locally available resources. This helps protect the economy, infrastructure and quality of life from external shocks.
Council leaders need to be realistic about start-up costs and the number of customers companies are likely to attract. But given the right support, I don’t see any reason why there would not be a municipal energy company in every city in the UK, and further afield.
1British Gas, EDF Energy, E.ON UK, RWE npower, SSE and Scottish Power.