View from the top: 25 years of privatisation

John Roberts looks back over 25 years of privatisation in the energy industry and welcomes signs that competition is finally beginning to thrive.

It is 25 years ago today that the energy industry was fully privatised, but while there has been significant change in terms of ownership and generation, for the most part customers haven’t experienced any real benefits in the home. It’s only been the last few years that we’ve begun to see the first shoots of change with more choice available in the retail market thanks to the growing number of independent providers offering fresh challenge and competition to the incumbent players.  Finally the energy industry has kicked the lethargy of the last quarter-century and can now accelerate at hyper-speed towards a more efficient, more consumer-focused future.

Privatisation promised wider ownership and good investment returns.  It successfully pulled businesses away from government control and into the management of energy experts, as opposed to civil servants. With the flotation of British Gas – with its famous “see Sid, tell him” advertisement – preceding that of the Regional Electricity Companies, people and companies began to buy shares, and thus the private market began to take shape into what we now know as the big six.

The real change since 1990 has been in ownership and generation, with the integration, splitting and merging of different entities, and significant developments made in generation technology. Issues related to carbon output, a topic not even fully considered at the time, have drastically changed the way that the industry works and thinks, impacting policy, pricing and innovation.  However, through the eyes of the customer, little has changed – that is until challengers came on the scene in the last few years.

Independent suppliers have emerged comparatively very late into the privatisation process, only starting to undermine the Big Six in the last four years. Despite this, they have been responsible for very rapid change. According to today’s data from Cornwall Energy, the independents’ collective market share is now 14.4 per cent. They have brought with them not only better prices and healthy competition to the monopolising players, but the intelligence to realise that energy, uniquely, is the perfect product to be sold on the internet. It is quite surprising that it has taken so long to adapt the sector to the modern world. When you think about it energy is actually a commodity more suited to online sales than books or clothes – there are no logistics or physical assets to contend with, just a change to the billing relationship. It is the independents who have cultivated this trend, being pioneering, flexible, responsive and disruptive to change the way that we buy, sell, pay for and control our own energy.

And this trend will continue with the proliferation of smart meters. With them comes an opportunity for an information revolution with the front runners taking inspiration from data and technology pioneers in Silicon Valley. We’re starting to see innovative uses of smart meter data technology, bringing customers into the light where the Big Six have kept them in the dark. The largest of these independents, First Utility (which according to today’s data from Cornwall Energy, now holds a 4 per cent of the dual-fuel market) has enabled its customers to analyse their energy costs through its unique digital platform, My Energy, breaking them down by month, day and hour, making predictions, giving personalised energy-saving tips and even comparing usage to neighbours.

The power, as a lengthy result of privatisation, has shifted from the government to the suppliers, and only now are we starting to see it in the consumers’ hands. We can debate all day long whether this should have been done at the moment of privatisation, but the good news is that rapid improvements are finally happening and the next few years promise far greater innovation and change for the customer than the last 25 years combined. Customers now have the insights to make smart decisions about their energy use and the information necessary to know when they aren’t getting good value for money. Choosing to switch to a better supplier is easier and again it was the new breed of customer-focussed suppliers who have led the charge to make improvements here. First Utility first challenged the industry to speed up switching time in 2013, leading to it being halved from five weeks to two and a half.

Energy no longer has an invisible, forgettable presence in our lives, but is a tangible product that we are better equipped to engage with and control. Suppliers are now motivated to outdo each other with better tools to help consumers use less, waste less and save more. In turn, they are also forced to be more transparent, more agile and more responsive.

By 2020, we will see smart meters rolled-out fully across the UK, and with that will come the next significant stage of the journey. The existing buds of innovation will make way for smarter, more sophisticated development, not in another 25 years, but just around the corner. And that’s crucial because the smart meter itself won’t solve all ills but it does provide the platform for even greater innovation that puts the customer at the heart. Now that the energy industry is finally getting over its growing pains, it’s time to see some genuine, fast-moving change.