The Business Benefits of ESCOs

In the third of his series of blogs for Clean Energy News, Stephen Cirell considers the business benefits of local authority Energy Services Companies (ESCO's).

In earlier blogs in this series, I have looked at what an ESCO might be and why local authorities are looking to intervene in their local energy markets. In this piece I consider the potential benefits for any local authority going down this route. These are the real benefits to repay the effort of establishing an ESCO.

One of the principal reasons is to intervene in the local supply market. Nottingham City Council has revealed that electricity prices in its region have reduced since it set up Robin Hood Energy. Not only is the Council successfully intervening in the market, but there is a positive ‘bounce’ for everyone concerned. Large energy companies change their pricing regularly and react to market circumstances. So just the fact of establishing an ESCO has brought a benefit.

But by owning its own company a Council can extract the full social value of its electricity. This can only ever be achieved if the Council controls the supply direct to consumers. Selling power you have generated on the wholesale market offers zero control on where it goes, who it is sold on to and on what terms.

This means that direct supply is closely linked to fuel poverty and gives a very real opportunity to do something about it. Many problems are caused by pre pay meters, but these can be switched to credit meters if there is a will to analyse the customer’s history of energy use. A local authority ESCO has a different driver to work with the customers to try and move away from pre payment meters. Smart meters can also start to address the key issue of behaviour change and influence on energy use itself. Again, a much wider societal benefit, but not something that would be actioned by a company solely considering the bottom line.

The vast majority of larger companies also sell predominantly fossil fuel generated power. A Council ESCO can seek to move to a decarbonised power supply.

The Energy Company Obligation only applies to companies of a certain size, but one that boundary is reached, again a local authority would have control over the ECO budget and be able to target the properties that are retrofitted to meet carbon targets.

The whole piece about the energy hierarchy is paid only lip service by the larger companies. Use less energy, improve energy efficiency and then create new sources of renewable energy is the mantra – but what is being done about it? There is very little effort on reducing energy use and explaining why it needs to reduce. There is insufficient advice and leadership on energy efficiency, which preserves the energy we are using. And there is a lack of local sponsorship of renewable energy sources at local level.

A civic ESCO can address these issues. It can look at behaviour and seek to reduce the amount of energy used in its area. It can try and reach the hard core of customers who will never normally switch and therefore pay the highest rates as a result. It can start to address demand side response in a co ordinated way.

All this adds up to a powerful package, with a very attractive social value into the bargain. It is the authorities that have worked this out that are leading the way, but it cannot be long before many others realise that now is the time to take action on this area.

Stephen Cirell is an independent consultant on the green agenda specialising in local government and the public sector. He is author of A Guide to Solar PV Projects for Local Government and the Public Sector, the second edition of which was published in 2015.