There is growing interest among local authorities for launching their own energy companies. The government’s efforts to upgrade the UK’s clean energy supply may provide additional opportunities to become involved.
Local authorities have become increasingly interested in supplying energy in recent years and if anything should make them more interested it should be the government’s energy report published this week.
The report, Upgrading our Energy System, laid out the government’s plans to will make is easier for householders to use solar panels, store energy and sell it into the national grid.
The government and Ofgem, the energy regulator, estimates consumers could save between £17bn and £40bn by 2050 if all the plans go ahead and succeed as intended.
The plans involve a new battery institute to improve battery technology as well as smart technologies that will use the internet to optimise energy use.
The government also plans to address the system that charges tariffs on those who use solar panels and have to import or export energy from the grid.
But the big issue for local authorities is whether they can exploit the coming changes to benefit their local residents, tenants, local businesses and council revenues.
That councils are interested in energy provision is undeniable. At the Room151 conference in September, James Rolfe, executive director of finance at Enfield Council, will talk about his authority’s decision to launch an energy company, Energetik. In February Alan Sitkin, Enfield’s cabinet member for regeneration, said the energy venture would “return £225m of economic, environmental and social benefits to residents and businesses in Enfield and the wider community.”
Enfield is not alone, however, in seeing energy as opportunity to do good and generate revenues. In 2016 Bristol Council created Bristol Energy which reported in April that it expects to be in profit by 2021, based on an investment of £15.3m. The stand alone company dubs itself a “force for local good championing social equality, local renewables and stronger communities.”
Perhaps one of the better known companies is Robin Hood Energy, owned by Nottingham City Council and launched in 2015 as a not-for-profit supplier aiming to save customers up to £237 a year on their energy bills.
However, Nottingham’s business model has extended to providing a white label service allowing Liverpool City Council’s LECCy and Leeds City Council’s White Rose Energy to launch.
White labelling is one of the models open to local authorities while Robin Hood and Bristol’s approach has been to become fully licensed suppliers giving their councils full control over prices and packages as well as the purchase agreements signed with the power generators.
Other councils are currently planning their involvement in energy. In March it became clear that Wirral Council is considering its own energy outfit, though it is still deciding whether it should be a white label, fully licensed operator or take the “licence lite” option.
So far only the Greater London Authority (GLA) has has shown any real sign of going with “licence lite”, which would allow the GLA to acquire low-carbon energy generated by pubic bodies and councils to sell it back into the market, mostly to London businesses.
However, the capital’s licence lite project , started before mayor Sadiq Khan took office, has been somewhat sidelined by news that the GLA is investigating its own fully licensed energy company, Energy for Londoners (EfLCo).
Switched on London (SOL), a group campaigning for a publicly-owned energy company in the capital, said in a report last week that a fully licensed energy company for London could make a profit of £186.4m in year ten of operations based on 350,000 customers generating revenues of £347m.
“Our modelling demonstrates that a fully licensed energy company, supplying direct to consumers, is not just a viable venture, but a profitable one, that would build revenues for and capacity in London, and save Londoners money on their bills,” says Switched on London.
A report from the London Assembly, published in May, sounded a note of caution that applies to all councils considering the fully licensed option.
“There are risks to the GLA here. Establishing the EfLCo will involve entering a new and highly regulated sphere of activity. Energy markets can be volatile and the EfLCo will need to be expert at assessing and hedging the commercial risks. The necessary due diligence will need to be conducted thoroughly.”
But the assembly also signalled it was in tune with the government’s thinking. It recommended that GLA act as customer for community and decentralised generators, potentially including “domestic micro-generators.”
If the government’s reform makes it easier for households to generate energy through solar panels, and to store energy through improved battery technology—as well as enabling the process through regulatory reform—then there is potential for council energy companies to buy the surplus and sell it on. That would represent a major development for local authorities, and there business operations, but also a major opportunity.
The clean energy focus also comes just as Westminster switches its attention to traffic pollution and air quality. This week, environment secretary Michael Gove announced plans to end the sale of conventional petrol and diesel cars by 2040, along with proposals to improve air quality. It looks likely that the burden of implementation is going to fall at local government’s door with central government putting up a £255m fund. Recent calls by LGA chairman, Lord Gary Porter, that councils be given no additional responsibilities amidst uncertain changes to the funding regime, may have fallen on deaf ears.
For some time now business and local government have talked about the risks arising from fossil fuels. The increasing interest in clean energy generation and the government’s strategy reveals that there are now opportunities too. Those opportunities are available to local authorities, not just to provide energy as a social good, but also to generate revenues that can be spent on other services. In a world where central government funding of local councils is about to disappear, that will look like an attractive option.
No doubt there are complexities involved, but forward thinking councils will be looking at their involvement in energy generation and supply. Local authorities are currently investing millions in commercial property. Canny finance directors may well look to energy as the next great wave of council diversification.
Gavin Hinks is the editor of Room151.