The Scottish referendum on independence will take place in seven months and, if successful, will separate Scotland from the UK politically. There will be plenty of wholesale changes, but none may be as problematic and financially important as those to the energy sector. The impact on retailers, and therefore consumers, will be significant.
In his white paper, Alec Salmond is proposing that an independent Scottish government would be committed to centralising the costs of the Energy Company Obligation (Eco) and the warm homes discount, meaning a reduction in consumer bills of around 5 per cent (roughly £70 a year).
This is good news for consumers, but this policy is different to that in the UK where retailers currently pass these costs on to customers. Should this be implemented, the result would be a system where retailers operating in both England and Scotland would need to produce materially different bills for people who are on the same tariff but live in different countries.
Implementing and managing these systems internally can be vry costly: Npower spent over £200 million in the past few years introducing what it calls a “customer service platform” to allow employees to access contract history, billing and payment information.
The well-documented and divided political agendas in the UK when it comes to energy throws further problems into the mix. Labour leader Ed Miliband’s pledge to freeze energy prices would put England at odds with Scotland, meaning consumers would be paying different rates for their energy, and the internal management of funding would be incredibly complex if centrally funded subsidies where introduced.
David Cameron plans to lower bills by implementing the Energy Companies Obligation (ECO) scheme over four years instead of two, and fund the warm homes discount with taxes rather than from consumer payments, which not only differs from an independent Scotland’s approach but presents a significant shift from current UK policies.
Any of these changes could result in a multitude of billing scenarios for energy suppliers and will require significant investment.
It is also important to consider the regulations that affect the cost of transmitting energy, which make up about 20 per cent of an average bill. Relative to England, by head of population Scotland has a larger electricity grid for fewer people. This means the cost of transporting energy would be higher per person should the UK national grid be divided or replaced in Scotland.
The effect on billing means that retailers operating in both countries would have different costs and would have to produce different bills for people using the same amount of energy. Placing different subsidies and other financial demands on retailers to maintain energy supply networks will just add more complexity and cost, which will be passed to the consumer.
It is evident that the pressure being placed on retailers to manage their customer relationships and billing practices effectively will increase over the next few years. These systems are also likely to become more complex and potentially more costly if they are not managed effectively.