With fuel prices soaring and our energy supplies running out, government plans are afoot to reform our electricity market. But what are the real issues at stake here? To get the views of someone from one of the smaller, green electricity suppliers Carla Jones spoke to Juliet Davenport, CEO of Ashden Award winning green electricity supplier Good Energy, about her perspective on this debate.
CJ: Why does the electricity market need reforming – what’s wrong with our current system?
JD: The current market is a product of another time. It is designed around using easily accessible and plentiful fossil fuel supplies to deliver cheap energy, with little consideration for the long-term impact that would have.
That system put lower costs ahead of everything else – not just in terms of the environmental impact of using unsustainable fuel sources, but also in terms of encouraging new long-term investment in our energy infrastructure.
The result is that we’ve been relying increasingly on energy sources imported from abroad and are at the mercy of volatile underlying wholesale prices. The UK also needs around £200bn of investment in our infrastructure over the next nine years. And it makes sense to target that investment at renewable resources which are abundant in the UK in order to wean us off our dependence on imported energy.
CJ: What difficulties do smaller companies and independent generators currently experience around competitiveness? What needs to be changed to improve this?
JD: Because the large suppliers also generate most of the power in the first place, it’s hard to know what the market value of that power is. That makes it harder for independent generators to enter the sector, because it’s difficult for them to know what price they can expect to get paid by a supplier – there’s simply no point of reference.
We need more transparency on wholesale prices. The Government could do this very easily, simply by requiring the price paid through any trade in energy over a certain size to be recorded.
CJ: What will the market reforms mean for energy suppliers and energy prices?
JD: The reforms are taking in place in part due to a lack of historical investment and in part due to the fact that in the long-term the underlying wholesale prices of fossil fuels is expected to continue rising.
Renewables are the solution - only they can provide lasting energy security whilst also decarbonising our power sector. If the Government structures its reforms right, consumers and businesses should be shielded from more price volatility in the future.
Encouraging more competition amongst suppliers will also help keep prices down. Reforms should take into account the fact that small suppliers find it harder to buy power under the present market arrangements. Just as a local grocery store can’t buy its stock from a food wholesaler in the same quantities or on the same credit terms that a big supermarket chain does, you wouldn’t expect a smaller supplier to buy power in the same way as the larger suppliers do. The problem is, of course, that the larger suppliers also own most of the power stations, so small suppliers don’t have access to the diversity in the wholesale markets they need to buy power differently. So it’s important that the Government’s plans not only encourage more independent generation but that they do so at a range of sizes.
CJ: What will the current proposals mean for your 8,000 energy generators around the country?
JD: At the moment, the proposals are built around encouraging investment in large-scale generation. But if we’re going to harness our renewable energy resources in the UK to provide security of supply, reduce consumption and emissions, we need a fresh approach. We’re lobbying the Government to make sure that the reforms include more support for decentralised generation – the foundation on which we see the UK’s renewable energy future being built. Our growing community of independent generators are the mini-power stations of the future. They are proof that when you understand where your energy comes from, you value it more and use it less.
CJ: If we want to deliver stable prices for customers in the UK, do you think these changes will be sustainable in the long-term?
JD: Renewable energy is the only fuel source that can guarantee that these changes are sustainable both environmentally and economically. The Government needs to prioritise encouraging investment in renewable technology at a range of sizes, ahead of other technologies. We’re still waiting for the detail of how these changes will work.
CJ: Will it be possible to make market reforms that help smaller green suppliers like Good Energy that favour local generators?
JD: Absolutely. Whilst we would have preferred some of the other options that were originally floated, these current reforms can still be structured with that in mind. We’re working closely with the Government, including through a new group chaired by the Climate Change Minister Greg Barker, to ensure that they do just that.
CJ: How is the market reform going to affect investment in renewables within the UK? Do you think it will benefit smaller suppliers?
JD: A lot will depend on the detail, which we’re still waiting for. At the moment, the initial proposals aren’t focussed enough on encouraging investment in projects at a range of different sizes –the mechanism chosen to encourage investors could be too complex for smaller independents, for example. But there is still the chance to get it right – the Government needs to bear in mind the concerns of all generators not just the large ones.
CJ: The government’s recent energy summit aimed to tackle energy price rises. Do you think they got to the root causes of price increases?
JD: Unfortunately not. The fact is that until we radically rethink the way our market is structured, here will be more energy summits as Ministers naturally want to be seen to be responding to bill increases. The summit did nothing to tackle the long-term issues we have with our market and the need to change its structure. This market is still based around fossil fuels, whose availability is declining and cost is increasing.
CJ: What will be the impact on smaller suppliers of the Ofgem proposals?
JD: The intent of reforming tariffs and making big suppliers sell off more of the energy they generate themselves is welcome. But unfortunately, the detail of the proposals will do little to improve transparency nor make it easier for smaller suppliers to compete with the Big Six.
We need 100% transparency on wholesale prices so we can understand how they relate to retail prices. The proposals as they stand won’t do that, but we’re working with Ofgem on how you can introduce a new system whereby power trades are reported and then published.
CJ: What can smaller green energy suppliers bring to the market that the big six can’t provide?
JD: Small suppliers have different specialisations. Good Energy is the only electricity supplier 100% committed to renewables – we’re unique in having a 100% renewable electricity fuel mix. We also specialise in supporting small independent generators - more than 1 in 4 of our customers also generates their own power, and we are market leaders in delivering the Feed-in Tariff, making sure the process goes smoothly and people get paid accurately and on time. We also beat the Big Six in offering more personalised service, and last year we topped Which? magazine’s customer satisfaction survey for electricity suppliers.
CJ: Have greener suppliers like you become more competitive in price compared to the ‘Big Six’ whose prices rose by up to 20% in the last year?
JD: Absolutely – our competitive position is the best it’s ever been. We’ve been working hard to make green power more accessible. Good Energy hasn’t increased our electricity prices for over 3 years and we’ve got no plans to raise them for the foreseeable future. That means that on average we cost less than the Big Six’s standard tariffs.
We’ve been able to hold our prices partly due to improvements in our weather forecasting techniques enhancing our ability to trade renewable electricity more efficiently, and because of the investments we’ve made in developing new sources of green energy, such as our wind farm in Cornwall.
Good Energy is proof that decentralised energy can provide the UK with resilience against price volatility caused by relying on energy imported from abroad.
CJ: Are consumers paying through the nose for renewable investment as some elements of the media suggest?
JD: No. The right-wing press in particular have been quite misleading about the impact of so-called ‘green taxes’ on consumers’ energy bills, and one tabloid newspaper in particular has had to print two retractions recently.
The facts are that the costs of renewables are around £20 a year, on an average fuel bill of £1300, for the two main incentives used. Those costs will increase, but so will the price of gas and oil. Investing in renewables sourced in the UK now should lead to lower prices in the long run than if we continue to rely on imported energy.
CJ: What’s your vision for the future, where do you see yourselves in 10 years’ time?
JD: We believe the UK can be 100% renewable by 2050, and we’re working as hard as we can to make that possible. We want to turn the energy market upside down, so that power is shifted from the large, monolithic energy suppliers to households, business and communities instead.
Last year we invested £12 million in a new wind farm in Delabole, Cornwall, the first project in a five-year plan to add 50MW new onshore wind power in the UK – that’s enough to power all the homes in a city about the size of Cambridge.
In 10 years’ time, we hope that the UK will have moved away from the highly centralised market we have now, where individuals have very little control over their energy, to one where they have a very different relationship with it. We hope to look back and be able to say that Good Energy played a leading role in pioneering a new approach to the way that the UK generates and uses energy.