A CONSULTATION on the establishment of a Scottish public energy company has been released, over two years later.
The Scottish Government dropped plans for a national energy company earlier this year, with an oversight agency set to be brought in instead.
Meanwhile, SNP members called for the public energy firm to be set up during their party conference in September.
The energy company was first pledged by First Minister Nicola Sturgeon in 2017, stating that it would offer cheaper, greener energy for those in fuel poverty.
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However, in the 2021-22 Programme for Government, the plans changed to a Public Energy Agency instead, which would lead the charge on decarbonising heating across Scotland.
A consultation on the remit and role of the agency was launched on Tuesday November 30.
At the same time, a 200-page outline of the business case for a state-owned energy company was published on the Scottish Government’s website.
What can we learn from the lengthy report about the feasibility of a national energy company?
When was the report prepared and by who?
The report was first sent from consulting firm Grant Thornton UK LLP to the Scottish Government on September 25 2019, and published online on 30 November 2021. In the introduction the document states that it was “prepared in good faith” but is not comprehensive or independently verified.
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Why does Scotland need a public energy company?
Alleviating fuel poverty is the key aim of establishing a national energy firm. It is believed that a national company would keep tariffs low for customers.
The report states that the Scottish Government could “influence and control unit and standing charge pricing for consumers”, but added this would be dependent on the delivery model chosen.
A staggering 24.9% of households in Scotland are classed as being in fuel poverty.
What are the delivery model options?
The report set out three options; a fully licensed supply, a white label supply and to do nothing. The first option would create “a licensed gas and electricity supplier with full responsibility for complying with all regulatory requirements”.
A white label supply would require setting up a contract with an existing supplier to provide services under the branding of the public company, with the chosen company paying fees to the public firm for each customer that switches.
The third option would exclude the creation of an energy firm and maintain the status quo.
Which delivery model did the report support?
The consultation firm scored all three options along multiple criteria, with the white label supply option coming up on top. However, the report notes that the full licensed supply option would have been competitively scored but it was “assessed as not being deliverable within the required time frame”.
The Scottish Government had given a hard date of March 2021 for any firm to be established.
Why was the white label supply model chosen?
The report notes that it would be much cheaper to establish a public energy company under this model, compared to the fully licensed supply option, which would have initial set up costs of between £2.5 million and £4m, and a working capital requirement of around £3.5m. It would also need a significant amount of credit, particularly for the winter months, estimated to be around £7m.
The report states: “One of the key benefits of White Labelling being the preferred option is the required level of funding is significantly lower than would be required under other options.
"There are no capital requirements under this option and the third-party supplier will carry many of the support function costs.”
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How much money would it save the average Scottish consumer?
The report claims that customers of a public energy company would have an annual saving of £58.97 for a dual customer and £26.21 for a single fuel customer.
It adds: “It is not possible at this time to calculate exactly how many individuals this might help to lift out of fuel poverty.”
However, the report suggests elsewhere that those at highest risk of fuel poverty should be offered the lowest tariffs, through coordination with local councils.
What could the benefits of a public energy company be for Scots?
Aside from the financial benefits, the report touts marketing campaigns on energy usage and the benefits of switching providers to bring greater awareness to the public.
The report notes that Scottish customers are less likely to switch providers, compared to those in the rest of the UK.
It also notes that a public energy company could allow the Scottish Government to have “more influence and control over the reliability of supply”. However, this could be limited by pursuing a white label option compared to full supply.
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What are the concerns noted in the report?
Although the consultation was released before the energy crisis in October this year, it notes that there is a high risk of energy companies collapsing and a trend in smaller firms folding.
It suggests the reasons for this should be “fully considered” before establishing a firm. Concerns were also raised that typically new energy firms need high levels of investment and make losses in the first few years of operation.
The report cites Robin Hood Energy, which had an initial start up fund of an £11m loan and subsequent £25.5m funding from Nottingham City Council to offset losses.
What is the Scottish Goverment’s current position?
Michael Matheson, Net Zero and Energy Secretary, said: “While work on a Public Energy Company was halted during the pandemic, the Scottish Government supports the future potential for local energy companies, and the consultation seeks views on the role of the Agency in supporting that model.”
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