Fixing a broken retail market

As chief executive of one of the market’s earliest disruptors, Doug Stewart has seen a lot of change since Green Energy UK came onto the scene in 2001. He talks to Utility Week about his concerns about mutualisation being triggered for the third year in a row in relation to suppliers not meeting their renewables obligations and his disdain at Ofgem’s rebranding of the big six to the "large seven".

“The financial viability of the industry, I believe, is in question. If we look at the balance sheets of the industry participants, there are a lot of them showing very negative numbers.”

When Doug Stewart looks at the current state of the energy retail sector, he sees a market that leaves a lot to be desired. This year four suppliers have entered the supplier of last resort (SoLR) process while nine exited in 2019. The sector is a notoriously volatile marketplace and many companies find it difficult to make a profit, with some challengers seeking to undercut the larger players with cheap tariffs.

He begins: “An oft-used expression is ‘the energy market is broken’. I’m not sure it’s broken for the consumer because there are plenty of very cheap tariffs they can avail themselves of on price comparison websites. But it’s very broken in terms of the people that are delivering those tariffs, those people cannot continue. I understand a business model that says go for growth, I even understand a business model that says go for growth at any cost but if everybody is adopting the same business model, you can’t all grow at an exponential pace, somebody ends up getting hurt.

“That hurt comes in the form of business failures, and we had another one recently in Yorkshire Energy, that comes in the form of customers being disrupted. Ofgem talks about their safety net, it’s very easy to be generous with other people’s money. It’s our money and we collect it from our customers so actually it’s our customers’ money that Ofgem is being very generous with. All of that pain is unnecessary if the regulator did a good job on the profitability of the industry.”

One area which Stewart has been the most outspoken about is the failure of suppliers to pay their renewables obligation (RO), leading to costs being mutualised. Recently it was revealed that for the third year running, mutualisation was to be triggered, with more than £33 million being picked up by compliant suppliers.

But what are his solutions? In the past the Green Energy boss has gone as far to suggest suppliers failing to meet their obligation should be “starved of cash” by being banned from taking on new customers.

“For anyone that has missed the RO, why don’t we demand that they pay on a quarterly basis for it? It’s not one size fits all, not everybody has to do that, but if you don’t pay on any particular deadline why don’t we say they have to pay quarterly? That would soon focus their minds on whether they can afford the RO within the prices they are charging”, he further suggests.

Utility Week recently revealed that the government is preparing to raise the threshold for mutualisation under the RO after a review deemed the current arrangements not fit for purpose.

In addition, the Department for Business, Energy and Industrial Strategy (BEIS) says it is considering changes to the way the mutualisation amount is determined in England and Wales in order to lessen its impact on suppliers.

Swapping the big six for the large seven

With almost two decades spent at the helm of a challenger brand, Stewart has seen the comings and goings of many a supplier. He has seen a lot of change, the most recent of which was Ofgem announcing it was rebranding energy retailers as small, medium and large, finally axing the moniker “big six”. Yet the industry stalwart questions the need for such a change.

“I don’t understand the necessity for a semantic change, if we didn’t like a big six why would we like a large seven?” he asks.

Green Energy UK has under 50,000 customers. It is small in size but for Stewart, the aim is to run a profitable business in a sustainable way. For the year ending 30 April 2020, the supplier posted a turnover of more than £22 million while gross profit was more than £3.7 million. Both figures were improvements on the year previously.

Responding to Ofgem’s decision, Stewart says: “What we have done is replaced two big six players with three disruptors. Is that a measure of success? If we looked purely at the prices offered on price comparison websites, you could say we have brought about a competitive market because cheap prices are available, but if we brought about cheap prices on the basis of destabilising the industry, I’m not sure that is a measure of success.”

Listening even harder

In an especially volatile year due to Covid-19, Stewart explains how the pandemic has led to the company undertaking a learning journey in how it communicates with its customers.

Historically credit control staff would call the customer and ask straight away about the money owed, rather than asking about their circumstances. Stewart says a change in tack has resulted in less confrontation between Green Energy’s customers and its staff. He adds that the change in approach was ultimately more beneficial from a business perspective and says the company will continue this going forward.

He explains: “We’ve always listened to our customers but listening to them harder helped us. We’ve streamlined some of our activities internally so people can deal solely with particular focus points and we’ve managed our credit control department in a manner which sought first to understand and then to be understood.

“By taking an interest in what people’s positions were, it made the conversations far less confrontational and far more helpful, for them and for us. We were reactive to people that rang in but we were proactive where people had increasing balances on their accounts. We rang them and said we are ringing to find out how things are for you.”