Why city-energy should NOT mean public-private partnerships

We take a look at the ways in which city-run energy is fast becoming a reality in the UK, casting a critical eye on the role of private companies such as Ovo energy, who are cashing in from what should be public, socially oriented initiatives.

After years of success stories from across Europe, city-run energy is finally taking off in the UK. With big energy companies now the most mistrusted industry in the country, local authorities are seizing the chance to offer their constituents something different. But what do these new municipal initiatives look like? And is any kind of city-run energy supply initiative, necessarily, a step towards the clean, just and democratic energy system we need?

Success stories

Perhaps the biggest cause for celebration so far, can be found in Nottingham and Bristol. Robin Hood energy – owned and run entirely by Nottingham council – is 100% public and non-profit, reinvesting all revenues in the city and cutting fuel poverty by offering tariffs that are around £200 cheaper than the average Big Six rate. Nottingham’s model is to buy energy from the grid at bulk and sell it back to households, cutting bills by eliminating the profit-motive and director bonuses. Similarly, Bristol Energy is fully owned by the local council, committed to tackling fuel poverty, as well as investing in community renewables and energy efficiency measures.

The new municipal initiatives in Nottingham and Bristol don’t deliver everything that Switched On London is calling for. While we want firm commitments to ambitious investment in clean energy technologies and concrete systems and structures for thoroughgoing community democracy and accountability – see more here – neither initiative is particularly ambitious in this regard. However, with full public control, Robin Hood and Bristol Energy are certainly a step in the right direction and – with some people-powered pressure – could likely be pushed in more transformative directions.

From city-energy to private equity: the case of Ovo Energy

But the same can’t be said for all moves towards city-run energy. New initiatives in Cheshire, Portsmouth and Southend see local authorities partnering with private-sector company Ovo Energy to deliver local energy supply. Under their Ovo Communities scheme, Ovo offer local authorities an “out of the box” package, selling councils their “expertise” in energy supply and offering to take on customer service, billing, trading, industry settlements and reporting.

Ovo was set up in 2009, billing themselves as a small and “independent” alternative to the Big Six. Despite the company’s modest origins, they have since quadrupled their customer base, becoming the eighth largest energy company in the UK, after the Big Six and independent rival First Utility. Ovo’s rapid customer expansion landed the company in trouble, reporting a pre-tax loss of £37.3m in 2014, compared to £100,000 loss in 2013. With the company in urgent need of new sources of revenue, they are now looking to the emerging municipal energy sector as a new market to boost profitability.

Ovo remains under majority ownership of founder Stephen Fitzpatrick, not listed as a private limited company on the stock exchange. Fitzpatrick himself has a background in real estate and finance, and was criticised in the Guardian for taking £2m out of the business in 2014 to purchase a new family home. Last year, Fitzpatrick sold off a 15% stake in the company to Mayfair Equity Partners – a new private equity firm backed by US financial heavyweights Goldman Sachs – raising the value of Ovo to £200m.

The promise of city-run energy is its potential for breaking the stranglehold of wealthy business executives, profit-hungry companies and shady financial institutions over the energy sector. With our fuel bills – and their profits – spiralling out of control, people across the country are eager for an energy company that they can trust, accountable to their needs and interests, not the whims of corporate entrepreneurs or private equity firms. Municipal energy initiatives partnered with the private sector are emphatically not this. The deal being offered by Ovo is nothing other than a public-private partnership, a classic case of the private sector cashing in, with the risks taken on by the taxpayer.

Energy democracy, or business as usual? 

With an escalating cold homes crisis and an old and creaking grid, we need municipal energy schemes centred on reinvestment in energy efficiency and new clean energy technologies – instead of diverting money back into the coffers of business elites. And with people fed up with being taken for a ride by the energy industry, municipal energy initiatives won’t gain trust by partnering with private companies and their financial sector backers. Nottingham and Bristol prove that fully public municipal supply is entirely viable: these initiatives show that the knowledge and expertise required can be found in house, no problem. With communities across the UK still suffering the damage caused by public-private PFI deals, we can’t afford to get ripped-off once again.

Switched On London brings together an unprecedented coalition of unions, think-tanks, environmentalists and community organisers under the common call for city-run, fully public, energy. We’re eager to work alongside local authorities – like Bristol and Nottingham – that are clearly oriented towards social and environmental goals, not private profit. But – just as we spoke out against the Greater London Authority’s secret partnership with nPower last year – when the idea of municipal energy becomes a smokescreen for partnerships with big business, we think it’s vital to call this out.

Image: Lars Plougmann, Creative Commons

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