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The changing power of an Electricity Supply Licence

The growth in the number of electricity supply companies has been well documented, with over 50 players now active in the market and no sign of an apparent slow down in new licences being granted by OFGEM.

What is less well understood is the opportunity that a supply licence potentially offers its owner- and increasingly it is not just about access to end consumers.

With the growth of competition, continual media bashing, a large proportion of consumers who haven’t yet had the appetite to switch supplier and a complex market to navigate, it is perhaps surprising that so many are still keen to enter the fray.

However, look a bit closer and the emergence of new ‘non conventional’ models gives some clues as to why this is happening

1. Local Government

Robin Hood Energy, Bristol Energy and many other local authorities are leading the way with new more localised models. Robin Hood is positioned as a not for profit organisation and Bristol is championing social equality, local renewables and stronger communities. As well as the emotional pull that is hoped will attract new customers, what these and other local authorities are realising, is that the ability to optimise council owned and locally generated power supported by strong credit ratings potentially gives the new businesses a real competitive edge in an inherently low margin business.

2. Growth of Demand Side Response

The growing need for demand side response actions in order to balance the UK system is driving the growth of a plethora of new market participants. These businesses are genuine disruptors as they are technology lead and agile. They can reposition quickly as new value pools emerge. However, what many of them are realising, is that however clever the technology in reducing demand, the attributable value ultimately flows via the supply licence holder who inevitably want their cut. Increasingly suppliers and DSR providers are becoming one- whether through partnership or in the recent case of Limejump by acquiring a supply licence. This trend is likely to continue.

3. Route to market for Renewable Generation

With the slashing of Feed in Tariffs (FITs) and closure of Renewable Obligation, many small scale renewable developers, particularly in solar and onshore wind are increasingly under pressure. Historically suppliers have been, and still are, the primary route to market for the power via FITs or Power Purchase Agreements. However, inevitably margin is lost via fees and charges by accessing the market this way. For those who have the appetite to build a trading/optimisation function and create an integrated service offering, a supply licence provides a route to value creation. More complex than the historical channel, but potentially appealing for business sustainability particularly as the world increasingly moves to the world of energy as a service.

4. Energy as a Service

‘Energy as a service’ is a phrase increasingly being heard around the market. The trend towards the integration of supply, generation and demand management means that the world for customers (and suppliers) is increasingly complex. Offering warm, lit offices, factories and ultimately homes at lowest cost is a more attractive proposition to customers than having to work it out themselves. We are starting to see convergence of the relative parts of the value chain through acquisition, partnership and in house development. In this new energy retail model, the supply licence or more to the point access to the market which an optimisation function can leverage, is the key to unlocking much of the value.

Straight energy retail is a hard market to play in as it is complex and increasingly competitive. However, for those who wish to leverage the value that an electricity supply licence offers, there is opportunity available which will ultimately only result in innovation and more appealing choice for consumers- moving us on from price to proposition and an exciting phase in market development.

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