What are the energy challenges facing SMEs and what would make things better for business?
For many businesses energy bills are now their second- or third-biggest cost, after labour and business rates. So making bills more competitive would be a huge benefit to all, from the smallest microbusinesses to the biggest industrial and commercial users. In a lot of ways, non-domestic energy users, particularly small businesses, are worse off than households. Households have a range of rights and protections in the energy market that businesses don’t. One thing we’d do is ban energy companies from offering unfair contracts and rolling small businesses over on to more expensive tariffs without their consent. We would also change the rules on back-billing, so that small businesses could only be back-billed for one year and not subjected to six years of crippling backbilling, which can run into tens of thousands of pounds. We’d also put rules in place to require suppliers to take into account the ability of small businesses to pay debts, and to come up with a realistic repayment plan.
Is the UK energy market fundamentally flawed?
There are serious structural flaws with the way in which the market works. It is characterised by consistently poor levels of service (particularly from the big six suppliers), uncompetitive prices, high and rising profits, low levels of consumer engagement and trust, and a market dominated by six firms, all of which inherited customers from when they were monopoly suppliers. The market has failed to deliver anything like the investment we need in generation.
What can be done to make markets more efficient?
A free market works only when there are proper rules to ensure fair play and competition. Prices and profits should be set by a properly functioning market, but it is government’s responsibility to ensure the market is working in a competitive way. Our proposals, such as a ring fence between the generation and retail arms within integrated energy companies (requiring them to trade power via an open pool or exchange), a ban on self-supply and an open marketplace should make this market more competitive, liquid and transparent0.
Research by NatWest/RBS shows that 96 per cent of small businesses are still on the standard tariff. Can government action discourage this inertia?
Lots of small businesses have had poor experiences with energy suppliers and have completely lost trust. Because of misselling, even when people have switched, in some cases they’ve ended up paying more. There have been some collective switches organised which have helped engage customers who have never switched before. But one of the best ways to encourage competition is by reforming the market to let new entrants compete. Most small businesses are still supplied by the big six. We really need to open up the market so that small suppliers and new entrants can come in and offer lower prices, better deals and more innovative products.
How about encouraging greater energy efficiency?
Energy efficiency isn’t just something for households; it should be a business priority, too. In retail, electricity bills are the secondbiggest cost after staff. Where food and drink is sold, refrigeration accounts for 40 per cent of electricity bills. Fitting doors on fridges reduces this by half. In 2012, the Co-op supermarket began installing fridge doors in all their stores. The cost is immediately offset by a smaller motor needed to pump refrigerants. It’s cost-neutral before the first bill arrives. The new motors also break down less, so maintenance costs are lower and less stock is lost. Every month, the Co-op saves 20 per cent on bills; as a result, in 2012, while energy prices were rising, it saved £50m.
Which renewables projects would you prioritise?
In some ways Britain is uniquely blessed with renewable energy potential. We’re the windiest country in Europe, the world leader in offshore wind. And nowhere has better marine energy potential. We might not be the sunniest country but solar has seen dramatic cost reductions in the last decade and in some parts of the world is getting close to grid parity. Those are developments that should be properly supported. But alongside these, we should also be supporting new nuclear build in Britain and carbon capture and storage, both of which are essential parts of a strategy to decarbonise our power supply.
Would you prioritise large-scale national developments or smaller, local projects?
This is a false dichotomy. With a quarter of our power stations closing in the next decade, we need to invest in new sources of secure baseload generation. But one of the most exciting things about renewable energy is that individuals and communities can generate their own power. Last year I visited Germany to observe their energy transition. It hasn’t been without problems, but today Germany has 1.3 million generators of electricity, and individuals own seven times as much renewable energy capacity compared to the big four utilities. The lesson I took was that building community ownership built acceptance.
What are the greatest energy challenges facing the UK?
Clearly, to rebuild and re-engineer almost our entire energy infrastructure in the next few decades in order to make it cleaner, more secure and affordable is a huge, almost unprecedented undertaking.
How would you address this challenge?
Some people say it’s not possible to achieve security, affordability and reductions in carbon emissions. They say we either have to slow down investment in clean energy and delay decarbonisation or accept that the gap between bills and what users can afford will keep rising. I disagree. Decarbonisation will lead to lower, not higher bills. Of course, gas is a vital part of our energy mix, and will be for years to come – not just for electricity generation, but for heating homes and businesses. That is why, provided it is economically and environmentally viable, we support shale exploration. But most experts think that if we rely on gas, bills will be higher than if we invest in clean energy. The Committee on Climate Change says a gas-based system would lead to bills £600 higher in 2050 than under decarbonisation. There are short-term investment costs, but with a quarter of power stations closing this decade, there will be costs whatever we do.
For more on the energy debate visit nw-businesssense.com/energy
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