A Scottish publicly owned energy company?

In a scoping note for the Economy, Jobs and Fair Work Committee published 29 June 2018, I review what we know about proposals for a Scottish publicly owned energy company and pose some questions about how those proposals might evolve.

What do we know?

The scoping note draws on a range of evidence to answer this: the literature on public and not-for-profit energy companies; the Strategic Outline Case document written for the Scottish Government by Ernst & Young; discussion with a number of interested stakeholders; and the evidence and views presented to the EJFW Committee during its inquiry on the draft Scottish Energy Strategy in 2017.

Firstly, we know that setting up a public energy company that has as its objective providing consumers with affordable energy means establishing that company as an ‘energy supply company’. In the liberalised British energy market, energy supply companies buy electricity and gas from generators and shippers and sell the energy on to end-consumers.

The GB energy retail market in which suppliers operate is heavily regulated and any new supplier must conform to market rules. There are now over 60 supply companies in the market, including a large number of small companies and some not-for-profit or social-purpose suppliers.

However, energy supply is a low margin market, and some supply companies struggle to be profitable. In the current market, successful suppliers are those that can procure energy at lowest prices, have the most efficient billing and customer relations systems, and are best at managing their buying and selling to minimise risk.

The market is also evolving rapidly, driven both by changes to regulation and the structure of the market and by external forces such as the new energy services becoming available to consumers through smart technology.

Thus a new not-for-profit supply company could successfully provide low cost energy to consumers, but this is not wholly straightforward in the current retail market. In doing so, it could help to address the fuel cost element of fuel poverty, provided those consumers most in need of accessing cheaper energy switched over to the new company.

Secondly, we know that there are a large number of other functions that a POEC could fulfil. Taking a wider view of the evidence, including from overseas, the review discusses four overarching objectives a Scottish POEC could have:

• Creating new energy infrastructure platforms
• Accelerating wider energy system transformation
• Increasing engagement and participation in the energy system
• Reducing costs to consumers

Where next?

The EJFW Committee will now be looking in more detail at the POEC proposals, and has issued a call for evidence to gather views.

Based on my review, I think the key question is: should a new Scottish POEC be more than a licensed energy supply company? There is certainly evidence to suggest that it could be, with a range of potential wider objectives. And there are ways in which space could be left for other objectives, for example by setting the energy supply company up under an umbrella structure that could eventually have other subsidiary elements.

The review concludes that a Scottish publicly owned energy company can deliver on a number of important objectives. It also suggests that it is possible to integrate these wider objectives into planning for the POEC, even if the focus for the POEC is initially as an energy supply company. Further, it suggests that it is essential to consider these wider objectives in the context of how the POEC will interact with existing energy policy initiatives.

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