The good news is that there is an increasing range of new entrants to the energy supply market compared to just a few years ago, many of which are offering innovative solutions to help businesses become more
. The bad news is that most
(SMEs) are failing to act. According to recent research by energy broker Make it Cheaper, SMEs are wasting £2 billion a year on inflated electricity rates just by failing to shop around.
Not surprisingly, given that buildings
are responsible for nearly half of UK carbon emissions, a number of the new entrants – Good Energy and Ecotricity among them – are offering a greener solution too. Whilst this may not necessarily translate into cheaper bills, according to Francis Wood, policy adviser at the Federation of Small Businesses (FSB), greener solutions appeal to many SMEs and even micro businesses.
"The growing importance of 'being seen to be green’ means that even the smallest of businesses want to demonstrate their green credentials to their customers. We have seen a growing interest in small businesses wanting to source their energy from smaller green energy suppliers," he says.2011: A bad year for the 'Big Six’
Of course, there are other reasons why businesses might be turning to smaller suppliers for their energy.
The 'Big Six’ (that is to say British Gas, EDF, E.ON, npower, Scottish Power and SSE) received a bad press in 2011. There were reports of, among other things, big price increases and more customer complaints, ultra-generous pay deals for company executive and demands for upfront energy payments hampering manufacturing recovery. Probably, only bankers and News of the World
journalists had a worse press last year.
"The emergence of smaller green energy suppliers can only be a good thing," the FSB’s Wood concludes. "For too long the Big Six have dominated the energy markets, which has stifled competition and has led to domino price setting – where once one energy supplier increases prices the other five follow suit within months, as we saw [last] summer.
"Whilst an increasing number of small energy suppliers may not be able to help drive down prices – since they are unlikely to be able to compete purely on cost terms – they can help limit future price increases and they can compete in terms of customer service where the 'Big Six’ so often let consumers down."
Inevitably, it has been the gaps left by the 'Big Six’ providers that have provided a way into the energy supply market for many of the newer players.
SmartestEnergy, which only supplies large energy users in the half hourly-metered market, has been purchasing and supplying energy from the independent sector for the past 10 years. Its ceo Groves says: "being a smaller company in a market dominated by major utilities has been a significant factor in our own growth".
He added: "As a new entrant we have been able to look at what was available in the market and develop the products and services we believe better meet the needs of customers in what is a fast changing market."Energy efficiency: key battleground for smaller players
One of the areas in which some new players have sought to differentiate themselves is by providing energy efficiency advice and products, often as an integral part of their customer service offering.
"Good Energy places a strong emphasis on offering energy efficiency advice and customer service," says ceo Juliet Davenport. "Our customer care team was the first to be trained in the EST (Energy Savings Trust) endorsed energy efficiency advice standard."
Ecotricity is another small player with energy efficiency on its mind – aiming to install smart meters at all its business customers’ sites.
Martin Moir, director of sales and marketing at First Utility, which claims to be the first company in the UK to begin a national rollout of smart meters, says: "Business customers typically contact us because they are looking to meet Government requirements such as the Carbon Reduction Commitment [CRC Energy Efficiency Scheme] and they are aware that we provide innovative smart meters that can help them do this."
He adds: "Not only do our customers have the benefit of 100 per cent accurate energy bills and therefore save time by not having to manually read meters at all sites, but they also benefit from the ability to monitor their energy consumption in detail, enabling them to identify areas where savings can be made to reduce energy expenditure."
Most energy supply companies now offer their business customers some kind of help with energy efficiency. Often this will take the form of a bespoke service for larger clients (particularly with a view to helping them meet their CRC commitments), with something more 'off-the-peg’ for SMEs.
For example, npower offers its SME customers SmartStart – a toolkit including a free energy monitor, a dedicated helpline and communication materials to help get staff on board. More than 10,000 SMEs have taken up the product so far, according to the company.
Similarly, E.ON has a product called Business EnergyManager, available to qualifying SMEs, which includes an energy monitor and software that provides information on energy usage.
EDF, meanwhile, says it is due to launch a new 'self audit’ product aimed at SMEs in February.
Smart meter rollout: more help needed for business customers
Although FSB’s Wood welcomes the energy efficiency help supply companies are giving their business customers – and would like even more to be done in this area – he is concerned that it should not become a 'tick box’ exercise, particularly where smart meter rollout is concerned.
He says the FSB wants to see supply companies working closely with their business customers. "Smart meters themselves don’t cut energy use but only the people who use them," he says. "We therefore want to see energy companies provide adequate training when the smart meter is being installed to ensure consumers get to maximise their benefit."
Navetas Energy Management, which itself provides energy measurement and management technology, believes there is also considerable room for improvement on the technology front. Its report last September, 'Time for Smarter Thinking’, which looked at 10 energy providers (including the 'Big Six’, Good Energy, Ecotricity, Co-operative Energy and First Utility), revealed a "confusing landscape" for domestic customers trying to reduce their energy usage.
According to communications director Nick Wellington, "the picture for business energy users is no clearer than with consumers.
"Even with the promise of accurate billing – a much-touted benefit of the smart meter rollout – energy users will only be faced with a bill for overall energy use, without any breakdown across the office, factory or other premises. Without this granular detail I seriously doubt energy consumers can make meaningful changes in behaviour."
He suggests energy providers need to start making tools, such as energy displays and data disaggregation available.
"By combining these tools, energy suppliers can give their business customers the power to understand and interpret their energy costs, and therefore enable them to make more informed decisions about how to save energy," he says.
Energy displays: Government needs to be more proactive
Wellington says Government should be proactive in encouraging the energy supply companies to roll out energy displays to all users ahead of the full smart meter rollout in 2014.
"Although energy displays have been mandated as part of the Government rollout of smart meters, no one has specified exactly what the displays should do, or how they should be incorporated into the overall smart meter picture.
"In my opinion these devices are critical for the long term goals on energy efficiency and for enabling even more savings to be achieved when smart meters are rolled out," he says.
"However, it is important that the Government and regulators do not allow these devices to become 'commodities'. The Government must ensure that they are designed to be intelligent energy measurement and management systems that allow energy consumers to accurately track consumption, by appliance."
SMEs: reluctant adopters
There is clearly a significant job of education to do and npower at least appears frustrated by the speed at which SMEs are adopting energy efficiency measures. Its Business Energy Index published last August showed more than half (53 per cent) of SMEs have no methods in place to manage energy efficiency, and nearly one in five (18 per cent) don’t know if they had reduced their energy consumption over the previous 12 months.
"The big problem with this group is getting them engaged," a spokesman says. "It’s one of the big issues for us."
Asked whether DECC is doing anything to encourage energy supply companies to help their business clients implement energy efficiency measures, a DECC spokesman said: "As featured in the Chancellor’s Autumn statement, up to £100 million for commercial and industrial energy efficiency will be made available from UK Green Investment in the next financial year, ahead of obtaining state aid approval for the Green Investment Bank."
Market structure: still barrier to competition
Although some new players have begun to make inroads into the energy supply market, most feel frustrated by the structural barriers that still exist. It is a frustration apparently shared by Secretary of State for Energy and Climate Change, Chris Huhne, who has repeatedly talked about the weakness of a system where 99 per cent of energy supply comes from the 'Big Six’ suppliers.
The Government has already taken some steps to improve competition, for example exempting smaller suppliers from the Carbon Emissions Reduction Target (CERT) and the Community Energy Saving Programme (CESP) (only those with more than 250,000 customers now have to comply, as opposed to those with more than 100,000, which was the previous threshold).
The impact of the major changes planned under the Electricity Market Reform and other regulatory initiatives (see below) will take time to feed through.
SmartestEnergy’s Groves says the changes will present "many challenges" but "we believe they will also open up significant opportunities for new entrants and energy entrepreneurs."
Energy regulator Ofgem says it aims to ensure businesses get better protection under its recent retail market review reform proposals – and to break the stranglehold of the 'Big Six’ in the wholesale electricity market.
"We have consulted [last year] on a proposed new licence condition that would require the 'Big Six’ to make available up to 20 per cent of their power generation into the market through a regular mandatory auction. Ofgem is also consulting on Mandatory Market Making. Our proposed way forward is due to be announced shortly," an Ofgem spokesperson explains.
Not all of the new suppliers are impressed with Ofgem’s efforts so far, however. Moir at First Utility says: "One of Ofgem’s solutions is to require the 'Big Six’ to auction 10 per cent to 20 per cent of their electricity generation output to let more companies enter the market. As far as we’re concerned this doesn’t go far enough and we believe this figure should be in excess of 50 per cent."
Moir also points out that some moves to improve market liquidity are not as useful as they appear. He cites the example of SSE, which announced in December that it will begin auctioning its generated energy to any supplier.
This, suggests Moir, "will have a negligible impact on encouraging competition because the energy is only available on a day-ahead basis, which constitutes less than one per cent of First Utility’s wholesale energy requirement. The majority of the power it buys for customers is purchased up to two years in advance."
According to Make It Cheaper, which helps thousands of SMEs a week switch suppliers, Ofgem’s proposed reforms don’t go far enough in helping business customers either. The broker has launched a campaign calling on Ofgem to force the 'Big Six’ to print contract renewal dates on all of their business bills so it is easier for customers to switch.
"Business contracts typically renew once a year and when they do it’s quite common to see rates go up by 50 per cent as contracts are automatically 'rolled over’ into new 12 month terms," Jonathan Elliott, managing director of Make It Cheaper, says. "The best prices are only available to those who are proactive about shopping around during their renewal window and then manage to avoid being rolled over by sending in a termination letter."
Clearly there is more to be done on the regulatory and policy front, but, in the meantime, energy suppliers – and business customers themselves – could be doing considerably more to cut energy bills and energy consumption in the workplace. New regulations in the pipeline
• Ofgem, the independent regulator, is currently carrying out its Retail Market Review
• Ofgem’s measures on liquidity will in turn underpin DECC’s wider electricity market reform proposals – the White Paper
was published in July.
• On 20 September 2011 Chris Huhne announced a number of measures
, including potential new powers for Ofgem to give customers redress, work to remove obstacles to collective energy purchasing, and asking Ofgem to look at predatory pricing.
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