Sunday, 8 June 2014

Ovo and community energy

A West Country energy company is attracting a lot of positive attention:
Futures Forum: Energy-switching from SidEnergy: Sat 14th June
Futures Forum: Ovo energy... How we could all get better deals on our energy bills

From yesterday's Independent:

Are you due an energy supplier refund?

SIMON READ  Saturday 07 June 2014

The relatively mild winter means you could be in line for a refund from your energy supplier, and it won't be peanuts! New research published this week suggests the average household in credit with their energy company could be owed £86.

Meanwhile, regular Your Money reader Colin Andrews from Wivenhoe has no plans to reclaim a credit from his energy company. Why?

"We are with OVO Energy and in credit to the tune of almost £300," he explains. "But I'm quite happy to leave it with them because they pay us 3 per cent interest." A heads–up to other suppliers.

Ovo is one of the cheapest, despite its 'green' and 'community' profiles:

Plan Name
First Utility
iSave Fixed August 2015**
Extra Energy
Fixed Price September 2015**
Flow Energy
Thames Online Fixed September 2015
OVO Energy
Cheaper Energy Fixed**
Green Star Energy
No Worries 12 Months Fixed 1405**
* Based on a medium usage customer using 3,200 kWh of electricity and 13,500 kWh of gas paying by direct debit with bill sizes averaged across all regions.
**These plans carry cancellation fees

New First Utility plan tops best buy table

Ovo is proving pretty savvy in the market place:
Edelman's Jessica Lennard jumps fence to join Ovo Energy amid "political storm" | PR Week

And Ovo wishes to challenge the dominance of the 'Big Six':

Breaking the Power of the Big Six

Stephen Fitzpatrick, founder of Ovo Energy

Richard Priestley 9 May 2014

The UK electricity market is currently dominated by six very large companies, who in general are very little trusted by energy consumers and who have been slow to embrace the challenges and opportunities that climate change and fears over energy security present them with. In Germany there were just four big incumbents. Things are changing. First in Germany, and now in the UK, we are seeing the emergence of a great abundance of innovative new players, most of whom have a very different ethos and business model from the old monolithic companies. In the UK the big six still control 95% of the market. I would expect their market share to plummet over the next few years.

Jeremy Williams, who writes the excellent Make Wealth History blog, wrote a good piece about this recently, titled ‘The four ages of electricity supply’, showing how from the 1880’s to the 1920’s we had up to 600 decentralized companies, which in 1948 were nationalized, reducing the figure to one, then following privatization in 1989 the current big six emerged. Jeremy predicts that by 2030 the UK might be back at 600. I think it may well be many more and much sooner, but it all depends on what you call an energy supplier. Thousands of households now supply rooftop solar to the grid, hundreds of renewable energy coops are being established and a few really innovative companies are challenging the power of the big six.

Ovo energy is one of the most extraordinary new kids on the block. Stephen Fitzpatrick started the company in 2009 and it has grown exponentially over these five years. They aim to be cheaper, greener, more efficient and helpful than the big six. Key differences are that they welcome more competition and are keen to work with a plethora of micro suppliers. They’ve recently published a 31 page Community Energy White Paper which is well worth a read.

Boris Johnson declaring that London should generate 25% of its own electricity by 2025 is welcome news. Creating Energy for London to buy energy from municipally controlled generators and sell it to Transport for London and the Metropolitan Police is similar to the situation in Germany, where many municipal authorities generate and sell energy, often with a wider range of social and environmental aims, rather than just profit maximization.

We buy our electricity and gas from Good Energy, who buy 100% renewable electricity from over 500 suppliers and have just opened the four turbine, 8.2 MW, Hampole Wind Farm near Doncaster. Good Energy, like Energy for London and Ovo Energy are all expanding and biting into the market share of the big six. Good luck to them!

Jeremy Williams’ blog http://makewealthhistory.org/2014/05/06/the-four-ages-of-electricity-supply/

Ovo’s Community Energy White Paper http://www.ovoenergy.com/uploadedFiles/Content/Different_Approach/Community_Energy/community_energy_whitepaper.pdf

BBC on Ovo http://www.bbc.co.uk/news/business-27112467

Boris’s plan http://www.theguardian.com/environment/2014/apr/25/mayor-boris-johnson-london-energy-independence

Energy for London http://www.energyforlondon.org/

Good Energy http://www.goodenergy.co.uk/our-wind-and-solar-farms/hampole-wind-farm

Breaking the Power of the Big Six | Richard Priestley

With a paper from Greenpeace:

Four ways Ovo and City support for community energy could transform the market.

28TH APR 2014 Jimmy Aldridge

License: All rights reserved. Credit: Shayne Robinson / Greenpeace

Ovo Energy launched a new idea this morning that has the potential to make a dramatic impact on the energy market.

In essence Ovo are offering community groups, Local Authorities, or housing associations the chance to run their own energy companies with much of the complexity and risk removed. Ovo would still be the licensed supplier but the group would be the face of the business and take the returns (above a 3% cut for Ovo’s services).

Ovo imagine that these groups will offer local people a community tariff that comes in cheaper than Big 6 tariffs. These tariffs will prioritise local generation but use grid electricity to ensure demand is met.

A key reason why this might work is that the big energy companies are just not trusted. For too long 6 companies have controlled the market and the stories of miselling, predatory pricing, and high profits are many. People want a change but they don’t currently trust the competition. In contrast, Local authorities and community groups have a very trusted name – people recognise them and they are used to dealing with them through other services. They also recognise that these organisations are not driven by profit but exist to provide services to the local area.

The trusted name could potentially mobilise the 30 – 40% of customers who have never switched supplier and are paying eye-watering bills. These customers are the ones that provide much of the profit for the Big 6.

Ovo’s plans are very interesting but they are not the only ones making changes in this space. On Friday Boris Johnson announced that the London Mayor’s office will be setting up as a supplier and aggregating energy from local boroughs. Also the Core Cities (a group of 8 cities including Bristol, Nottingham, and Manchester) are planning to set up as energy companeis in order to take control of their energy and begin to manage their own services. This could result in the returns from the generation and supply of energy going into local services rather than energy company pockets.

If these develpments are successful they could have 4 major impacts on the energy market –

1) Put a rocket under local energy schemes – whether local organisations enter the energy market with the help of Ovo Energy or whether they do it themselves the impact could be a significant scaling up of clean community-level generation.

Communtiy energy has struggled to get beyond a sideline to the energy market because the market is not designed to help them, policy support is patchy, and they don’t have the human and financial resources to develop big/many schemes. If these organisations had a supply business that brings in additional revenue they can complete the circle and start to run healthy community projects. This could build capacity within these organisations to start entering other areas of the energy space such as energy efficiency and demand-side services.

2) Increase competition and damage profitability of the Big 6 – Ovo think their model can bring forward 500 new supply market entrants by 2020. That is a significant number and if those new companies can attract lots of customers then the market will start to look a lot more competitive.

If the people switching to the new, trusted companies are on high tariffs, as explained above, this would remove one of the key sources of profit going to the Big 6 energy companies. Not only would they lose many customers but they would lose their high value customers. This could have a significant impact on the dominance of those 6 big companies and the market might start to look very different.

3) Demonstrate local energy at scale – If local authority and community owned energy really takes off it would demonstrate that this a realistic alternative to big utility-run energy. At present local energy is viewed by government as a nice add-on but energy policy is not designed around it.

Local energy that already exists is there despite the market, not because of it. Perhaps, an upsurge in local energy (both generation and supply) would shake the government, the regulator Ofgem, and National Grid who struggle to look far beyond the existing business models and companies, and force them to consider alternatives.

4) Reduce energy bills – Ovo think their model could reduce costs to customers through three sources –
Reduced charges for using the grid because more power would be sourced close to where it is consumed.
Lower costs for power because the communities owning the generation require smaller profits.
The recycling of community benefit funds that local groups receive when generation projects are sited in their area.

Reducing energy bills obviously has major political appeal and if it can be demonstrated that local energy means lower costs we may see a meaningful swing of support behind these schemes.

The interventions from Ovo, London and the Core Cities are very interesting innovations that could bring forward some exciting schemes. But perhaps more important is the illustration of new thinking in the energy market. Alternative ways of managing this sector are possible – hopefully these schemes are just the start of a wave of new players who will start to shake-up the old system and bring forward new and exciting schemes that truly benefit customers and communities.

Four ways Ovo and City support for community energy could transform the market. | Greenpeace UK
Energy round-up: the future’s local? | new economics foundation

See also:
Futures Forum: Energy firms receive £1bn for green measures before they are carried out: the Energy Company Obligation
Futures Forum: "Community energy offers a long-lasting solution that protects against ‘big six’ price rises and pumps money back into local areas.”

No comments: