Guest blog – A Scottish Publicly Owned Energy Company?

Ragne Low from the Centre for Energy Policy at the University of Strathclyde presents a scoping note, commissioned by the Parliament’s Economy, Jobs and Fair Work (EJFW) Committee on the proposed Publicly Owned Energy Company. The research was published on 29 June 2018.

As with all guest blogs, what follows are the views of the author, not those of SPICe or indeed the Scottish Parliament.

Background

In October 2017 the Scottish Government announced its intention to set up a not-for-profit Publicly Owned Energy Company, that will provide consumers with affordable energy and help address fuel poverty. The idea of creating a government-owned energy company had already been floated in the Draft Energy Strategy of January 2017, but at that time with a slightly different purpose: to help the growth of local and community renewable energy projects.

The scoping note reviews what we know about proposals for a Scottish Publicly Owned Energy Company and poses 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 written for the Scottish Government by Ernst & Young.
  • Discussion with a number of interested stakeholders.
  • 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 to provide 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 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 actually switch over to the new company.

Secondly, we know that there are a large number of other functions that a Publicly Owned Energy Company could fulfil. Taking a wider view of the evidence, including from overseas, the review discusses four overarching objectives that this company 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?

Based on the review, the key question is: should a new Scottish Publicly Owned Energy Company 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 Publicly Owned Energy Company, even if the focus for it 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 company will interact with existing energy policy initiatives.

Inquiry into a Publicly Owned Energy Company

The EJFW Committee will be looking in more detail at the Scottish Government’s proposals in the autumn, and has issued a call for evidence to gather views, asking the following questions:

  • What are your general views on the idea of a Scottish Publicly Owned Energy Company?
  • What role should it fulfil and how?
  • What are the key challenges that the Publicly Owned Energy Company should address?
  • How might a Scottish energy supply company work best to support the growth of local and community projects, and fuel poverty reduction?
  • How can the Publicly Owned Energy Company be best designed to align with wider Scottish energy policy objectives, and to avoid potential policy conflicts?
  • Should a new Scottish Publicly Owned Energy Company be more than solely a licensed energy supply company? Should it have a direct role in energy generation?
  • How might the Publicly Owned Energy Company be designed to promote objectives and functions beyond the retail of gas and electricity (e.g. supporting investment and innovation in new technologies and infrastructure)? What benefits are there to having wider objectives?
  • What governance arrangements should a Scottish Publicly Owned Energy Company have?  Who should it be accountable to e.g. Parliament?
  • Should legislation be required to underpin the creation of a Publicly Owned Energy Company?

The call for written views will close on Thursday 13 September.

This blog has also been discussed in a Scottish Parliament podcast.

Ragne Low

Principal Knowledge Exchange Fellow

Centre for Energy Policy, University of Strathclyde International Public Policy Institute