Jon Kimber, MD, AgilityEco
As soon as the temperature plummets and the heating goes on, the news at this time of year tends to turns to the subject of energy prices and, inevitably, switching energy suppliers to find the best tariff. Despite the media attention on energy switching and increased advertising from price comparison sites, new figures from Ofgem suggest that more than 13 million British households missed out on savings last year because they didn’t change their energy supplier. The Energy Saving Trust has found that 60% of non-switchers believe they’re already on the cheapest tariff available (unlikely) and 43% believing that switching won’t benefit them, despite Ofgem indicating that households could save up to £300 a year. With more than 25 licensed energy suppliers actively offering hundreds of different tariffs, it’s no wonder that households feel bewildered and unwilling to take the time and effort to investigate the alternatives. So customers stick to the big players purely on the basis that they’ve been around for the longest.
But change is coming, and from an unexpected source. Over the past couple of years there’s been a noticeable shift in the role of local authorities and social landlords in helping their residents with energy costs. The onus has been on social landlords to help lift their own tenants out of fuel poverty and in to warmer, healthier homes for quite some time now. But now an increasing number of local authorities and social landlords are looking beyond this at how to help local residents with the price they pay for their energy. They are taking three distinct approaches:
1. Some local authorities have dipped their toes into energy retail, setting up their own energy supply business. And while there have been some highly publicised forays into energy retail such as Robin Hood Energy in Nottingham, Bristol Energy and Our Power in Scotland, we would advise our clients to think carefully about the costs and risks involved in doing this. A huge customer base is essential before energy retail can even be considered to be a standalone business, once wholesale prices become more volatile there will be significant price risk, and in an already highly competitive retail market it is unlikely that the local authority will offer the cheapest tariff available for all residents.
2. A second approach, “white labelling” has been taken by a number of other local authorities, such as Peterborough Energy and “fairerpower” in Cheshire East. In this approach, a local authority offers residents a tariff under the local authority’s brand (or a neutral local brand), where a licensed energy supplier provides the actual supply and customer service. The big challenge for this type of scheme is that it can only ever offer a limited number of tariffs and therefore becomes a “one size fits all” solution which is unlikely to offer the best deal for all residents at all times (the “right” tariff for a household depends on consumption, payment type, dual vs single fuel, fixed or floating price preference and so on). AgeUK, in its white label partnership with energy supplier EON, found this out at its expense, when its white label tariff came under intense scrutiny for not being the cheapest tariff for its members.
3. A number of local councils have become involved in “collective energy switching” initiatives, participating in schemes such as the Big London Energy Switch. In these initiatives, the local authority gets households to sign up to a switch, then aggregates these households together and undertakes an auction amongst energy suppliers to offer a special deal for these customers in attempt to exert “buying power”. These are worthwhile schemes if they stimulate inactive customers… but in our experience, there are two problems associated with collective switching that limit their effectiveness. Firstly, once again there’s no “one size fits all” solution and customers are unlikely to get the best tariff available. Customers are given a prescribed tariff – all it usually only takes is a little independent research for them to find a better one. Secondly, timescale of the process involved in switching over can lead to a huge fallout in customers as they lose interest –we’ve seen evidence that up to 90% of signed up customers drop out.
There is a new way forward into the energy market and recently we’ve been helping local authorities achieve guaranteed best rates for their residents and tenants, whilst avoiding the pitfalls associated with energy retail, white labelling and collective switching. With our help, Portsmouth City Council has just established its own energy price comparison and switching service, in partnership with UK Power. With this website and telephone service, the council is able to offer the best available tariff to all its residents. By working alongside a switching service provider that is: Ofgem accredited; fully independent; and presenting every tariff from every energy supplier, Portsmouth City Council can provide the reassurance that the service is wholly council endorsed.
For Portsmouth, launching the price comparison service has been very straightforward. The set-up was rapid – developed and tested in under a week - and deployed and marketed with minimal cost. The council has been earning financial rewards via commissions from the service which are now being ploughed back into Portsmouth community initiatives. Portsmouth will soon reach over 200,000 homes and businesses through its marketing outreach and is saving customers on average £297 a year by moving them to more advantageous tariffs.
We believe that there are a number of advantages to this approach. First and foremost, it ensures that every household is signposted to the very best tariff to suit their needs. This protects the Council’s reputation and ensures best value for residents. Secondly, it is easy and cheap to put in place and avoids the risks inherent in other approaches. Thirdly, it can be run alongside any of the other approaches above, ensuring that all options are made available to households and therefore giving best advice to all.
AgilityEco is now in advanced talks with many more local authorities and social landlords who are all keen to follow in Portsmouth’s footsteps. If you would like further details on how energy switching price comparison could benefit your residents, please contact Jon Kimber on 01372 738 952.