Interview: Juliet Davenport, chief executive, Good Energy

“Renewables should be looking to a future where there isn’t any subsidy. If I could move there tomorrow I would, because I don’t want subsidies.”

The words “fear” and “trepidation” are not ones you’d expect a green lobbyist to use in association with the forthcoming climate change conference in Paris at the end of this year.

Nonetheless, these are exactly the words Juliet Davenport, chief executive of Good Energy, uses when Utility Week asks about her expectations of the talks that aim to achieve a legally binding, global commitment to tackle climate change for the first time.

Davenport was sensitised to the challenges posed by climate change long before the issue attained mainstream credibility, having studied first atmospheric physics and then environmental economics at university. She went on to work for the European Commission, contributing to early structures for carbon taxation and environmental policy, but became frustrated by the lack of political will to effect real change in the direction of ­economic decarbonisation – especially in the UK.

Determined to demonstrate the potential of renewable energy to decarbonise a fossil-fuel powered society, Davenport established Unite in 1999 – in 2003 it became Good Energy, one of the first independent energy suppliers to appear in the newly privatised electricity market and still the only one to offer customers 100 per cent renewable electricity.

Sipping coffee in an in-demand meeting room at Good Energy’s Chippenham head office – space is at a premium following a recent recruitment burst – Davenport explains her less than enthusiastic anticipation of the UN Climate Change Conference: “I went to Bonn years and years ago and it was the most utterly, utterly chaotic thing I have ever been to. I can’t think of anywhere worse to be than in that negotiation” – one which for all the promising rhetoric, is unlikely to lead to an agreement that will keep global warming within the magic “two degree” window for global warming, she adds.

“The regulator needs to get over thinking that every time it gives some advice it’s going to be sued.”

Juliet Davenport, CEO, Good Energy

More broadly, however, Davenport is optimistic about changing industrial attitudes to decarbonisation, which seem to be picking up international momentum, ­independent of political wrangling.

She finds Eon’s decision to split its business, for example, “very interesting” and a potential blueprint for other large firms to undertake the difficult process of writing off carbon-intensive assets in order to face up to a new collective realisation that it is time “to do something about climate change”.

Setting out the size of that challenge in business terms, Davenport references the findings of the “Do the Math” campaign in the US. “If we want to keep within two degrees, they worked out that you can put 260 more gigatonnes of carbon into the atmosphere – that’s the hard limit. The key issue is that if you look at the global market there is about 2,700 gigatonnes listed.

“That means if you want to stay within two degrees, we’re going to have to write off a lot of balance sheets and that is a reality. It’s an incredibly hard reality to work out. Who will start to move first and how do you work out what to do with an asset that no longer has a value? That’s where a lot of the energy companies get stuck.”

Recent and widespread announcements that institutions of all kinds are committed to rapidly divesting their carbon-intensive investments will, however, “make it a lot easier” to write off those assets, says Davenport – and put companies like hers in a favourable position.

“That money will have to find somewhere else to invest and the people who don’t have so much carbon on their balance sheets will suddenly be worth a lot more,” she reasons.

It’s an optimistic outlook, but surely one that is ­undermined by recent announcements back in the ­microcosm of the UK that have seen subsidies for ­renewable energy slashed?

Again, Davenport is surprisingly dispassionate in her response. Other renewables advocates have expressed outrage at moves to “stop the spread of onshore wind” and remove renewables exemptions under the Climate Change Levy, but Davenport says: “Were we shocked? No. We took a long look at all the renewable subsidies in this marketplace about five years ago.

“We looked at the non-fossil fuel obligation, the Lecs, Rocs, the FIT CfD and the FIT – it’s quite complex in terms of the different mechanisms, they’re not ­conflicting but I think they could be seen to be competing.

“And, from our point of view, renewables should be looking to a future where there isn’t any subsidy – we should be calling that there aren’t any subsidies for other fuels as well – that’s the world we should be looking to. If I could move there tomorrow I would, because I don’t want subsidies.”

Turning from aspiration to practical impact, ­Davenport admits that chancellor George Osborne’s ­decision to remove renewables exemptions to the ­Climate Change Levy will hit revenues on the generation side of the ­business. Pulling out her phone to make a quick calculation, she confirms this will be in the order of £400,000 next year.

That said, Davenport insists that Good Energy has a “balanced” view of the development since the negative effects on generation will be absorbed by continued competitive offerings in business and domestic supply. Shrugging, she concludes that it’s all part of a process to make the industry – “not just the renewables industry, the whole bloody industry” – leaner and meaner for a future she expects to be defined by declining demand.

It’s a trend which has already made itself felt in Good Energy’s financial reports. While generation revenues were strong in 2014 and the business grew by 43 per cent with assertive customer acquisition, a long spell of warm weather meant that demand for energy declined by around 10 per cent and profits (before tax and exceptional items) were 33 per cent down on the previous year, at £2.2 million.

This experience was mirrored in reports from other suppliers, Davenport points out, and it is something that they are all going to have to come to terms with.

“One of the interesting consequences of climate change is that we are going to see more extreme weather but also warmer weather at certain points,” she says. This lays down a big challenge for energy suppliers to get better at long-term weather forecasting “so we can at least look to manage our profitability over the years and understand when we are likely to have a low energy usage year”.

Having defined the likely parameters and pace of change in demand patterns, innovative and tenacious suppliers will then need to fundamentally rethink accepted business models, moving to become lighter on expensive assets and more proactive on customer engagement.

Davenport is determined Good Energy will be at the vanguard of this shift, embracing the opportunities offered by decentralised generation, energy storage and energy efficiency so that “credit is more spread out” across the system and individuals have a bigger role.

She imagines a business model whereby “I have to raise less money, but I can supply more people and potentially look at other things I can provide them – like insurance for their house related to their solar panels, temperature control… general control over all of their homes. Look at the value added there and it becomes a much more consumer-focused approach, rather than just the traditional big power stations and big levers.”

It’s a revolutionary vision for the UK energy market, and one which Davenport wants to realise with impetuous speed by industry standards. To this end, Good Energy is working hard on getting a range of ground-breaking energy trading and service products to market.

In March this year, Good Energy revealed a first-of-a-kind renewables trading platform that promotes direct contracting between generators and consumers. Piclo has been described as both eBay for energy and Uber for energy by commentators and Davenport hopes it will prove the feasibility of a “supplier-light” delivery system.

The platform is currently gathering participants for a trial this autumn – slightly behind schedule due to ­difficulties in fine-tuning the legal framework for ­contracts – and is keen to attract about 25 participants on either side of the table to prove the system works. At the moment, customer volunteers are proving harder to secure than generators.

Another focus for innovation is energy storage. Good Energy is conducting trials with Moixa in a Department of Energy and Climate Change-funded project to uncover the potential of their domestic-scale batteries to help balance variability in renewable energy generation and promote energy efficiency. Davenport hopes to have a storage proposition ready for market by April next year. There’s no clear idea what this offering might look like yet, but she is optimistic that a new commercial director – due to join Good Energy in September – and a market appetite whetted by Tesla-related hype, will create a favourable environment for it.

But perhaps one of the biggest challenges that Good Energy will have to overcome to achieve the disruption it aspires to will be the complex regulation of the electricity retail market, which is currently under intense scrutiny from the Competition and Markets Authority (CMA).

Davenport’s response to the preliminary outcomes from this inquiry is broadly positive. She welcomes the decision to not recommend breaking up the big six, which she says would have been a “distraction”, and she acknowledges that it’s good to see formal pressure coming down on incumbents to address “sticky” customers on standard variable tariffs – although she adds that this was hardly a revelation and is not convinced that a cap is the right course of action to address it.

What she’s most pleased by, however, is the ­attention the CMA has drawn to the obscure complexity of the ­sector’s regulation and the recognition that this is a ­“significant issue in this market – for everybody”.

“We did some analysis and figured there’s about 11,000 pages of code that you have to comply with to be part of this marketplace,” she says. “Also, a lot of those codes were put in before the Ark – pre-meter, ­during privatisation – and are really not fit for purpose in the market of today.”

Retrospective tweaks that have been made over the years have only achieved unintended consequences, says Davenport, and today represent a major hurdle to innovation, and to new entrants. She implies it is time for a systematic review of the codes and a move towards principles-based, rather than prescriptive, regulation that is based in more than rhetoric.

For Ofgem, this – in part – means a new approach is needed to the way guidance and interpretation of industry codes are issued, says Davenport. “There needs to be a lot more clarity when things are put in place around what they mean and how they should be interpreted.

“So, when you go to Ofgem today and ask them about something – they won’t interpret it for you – they tell you to go and get a lawyer to interpret it for you… the regulator needs to get over thinking that every time it gives some advice it’s going to be sued. Because as it stands [the codes] are so complex that there are only a few companies who can afford to have enough people to be able to interpret them all.”

Davenport says Good Energy’s greatest achievement has been its ability to weather this inhospitable environment for small energy suppliers for more than 15 years and she is proud of the growth it has achieved – now boasting a market capitalisation of c£33 million. But looking forward, she is even more ambitious: “We want to be much bigger,” she says, mentioning the potential for a five-fold increase in size over the next few years. “We want to prove that Good Energy is a blueprint for how the energy market could work and we want to ­demonstrate that at scale.”

NB: Juliet Davenport will speak at Utility Week Congress 2015 which takes place in Birmingham on 14-15 October. Find out more about this event here: www.uw-congress.net/home.