End of an era for energy firms?

By Martin Ford | 22 February 2022

The history of municipal energy companies is a somewhat chequered one. The recent past is littered with expensive failures, but does it have a future?

The demise of Together Energy, another firm heavily backed by a local authority, appears to have driven the final nail into the coffin of council-owned companies.

There was a time not so long ago when a rash of such ventures cropped up – no surprise when one considers the benefits on offer. It not only offered a direct route to help to bring down residents’ bills and encourage the switch to renewable energy sources, but many also saw it as a means of boosting council coffers.

But the annus horribilis of 2020 claimed a string of high-profile scalps.

Bristol City Council was the first to cut its losses – currently estimated to total £43m – when it sold Bristol Energy.

It was followed by the collapse of Robin Hood Energy, established by Nottingham City Council as a not-for-profit venture focused on tackling fuel poverty, inflicting a £38m loss from which the authority is still recovering.

The same year Victory Energy was scrapped even before it was fully up and running, following a change in political administration at Portsmouth City Council. Liberal Democrat councillors decided to take a hit of about £3m rather than risk the scale of losses seen elsewhere.

Fast forward to the present and Together Energy, in which Warrington Council has a 50% stake, has become the latest local authority-backed energy firm to collapse. Administrators are still at work, but according to estimates, Warrington’s exposure could run to tens of millions of pounds.

Joanne Pitt, local government policy manager at the Chartered Institute of Public Finance and Accountancy (CIPFA), told The MJ they served as a salutary lesson to the sector.

‘It would indicate councils need to be very clear and have the capacity and expertise for the sector in which they operate,’ she said.

‘The social objectives for entering these markets were extremely laudable. The reasons were all about sustainable energy provision at lower cost – those values, aims and objectives were from the right place, but over time, the execution has proved very challenging.’

As local government continues to look for ways to balance the financial books in tough times, Ms Pitt urged caution against authorities overreaching themselves.

‘The energy sector is a very specialist sector. It can be challenging to have the expertise to act in that area. When you go into any new venture, it’s really important the groundwork is done before any decisions are made.’

As to whether the councils pulled the plug at the right time, Ms Pitt said business plans should dictate when what could be an emotive move must be made.

‘If you get the business plan right, a lot of those decisions become automatic,’ she added.

With the collapse of most local authority companies and the financial model seemingly thoroughly discredited, you would be forgiven for assuming council dabbling in the market has ended.

There are sparks of life remaining in the sector, however.

Companies based around energy production, such as district energy schemes, form the last bastion of council-owned ventures in the field. They include Gateshead MBC’s Gateshead Energy, Barking & Dagenham LBC’s B&D Energy, and ThamesWey Energy, owned by Woking BC.

Aimed primarily at promoting the use of sustainable energy sources, most are based around combined heat and power or solar power systems. Financially, they are less exposed to fluctuations in wholesale energy prices and represent less of a risk as they have greater assets to fall back on.

Chief operating officer at ThamesWey Group, Sean Rendall, said: ‘We are acutely aware of what’s happened to Bristol Energy, Robin Hood Energy, and others. I have to provide comfort to our owners we are not a Bristol Energy or Robin Hood.’

ThamesWey mainly serves commercial customers and its tariffs are indexed to wholesale costs, helping shield the company from recent turmoil that has seen a host of suppliers go under.

Though the company was established by Woking in 1999, Mr Rendall was bullish about the future for councils and the energy sector: ‘The bold decision 20 years ago was almost unique. The argument for doing that is as strong now as then.

‘It shouldn’t be assumed that local authorities shouldn’t get involved in energy supply,’ he said. ‘For provincial authorities, the opportunities to attract large-scale investment are limited. But just because they are small, they are not powerless.’

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