Starting out, the most important thing to consider as a new entrant to energy supply is appreciating just how price sensitive the market is, and how this affects new suppliers. New supply businesses are under considerable strain right from the get-go due to small gross margins. To make it work, you need deep pockets to get through the initial stages until you reach a scale that is profitable, allowing you to cover costs. Then, and only then, can you get the balance right – and when I say balance, I mean a deal and pricing that’s good for the business and fair for consumers.
A key challenge is to get power and gas on the credit line in good time, so you can hedge your pricing effectively. The biggest difficulty here for an independent new entrant is buying power and gas on a long-term basis. With gas, we’re lucky to have a partner that we buy from with a long-term view, so we can lock in a margin. However, when it comes to power, it’s the polar opposite.
With power, we can only get a three-month hedge, which means we have to take a weighted approach. Of course, there will always be appetite for fixed-price deals, and we have the opportunity to extend that now – but for this you need to have credit cover in place, putting down significant cash or security with the trading house. Otherwise, you’re subject to system prices, which are determined on how stressed the grid is, and you’d then cash out at this rate. This is very risky; supply businesses, particularly new entrants, must understand all these risks – it’s crucial. If you go into the gas and electricity market without understanding these costs, you might as well take your money and stick it on red.
Another significant challenge to bear in mind is the non-commodity costs that new entrants often fail to consider when starting out, which can lead to quick failure. For example, there are feed-in tariffs, pots of money you need to pay into to support solar panel installations. These aren’t cheap. There are also costs of the capacity market – we have to contribute towards the upkeep of the government’s backup generators that can bear the load if primary systems fail. And then there’s the Renewables Obligation certificate, which also comes with a significant price tag.
It’s imperative that new, independent suppliers have the right people in their organisation with the right experience and knowledge of all of this so they can operate cost-effectively. This is one of the key reasons why we’ve made such a strong commitment to our people at Eversmart. Not only are we committed to finding the right people, but also keeping them, and ensuring they have the best possible work environment.
This is a challenge in itself. There simply aren’t enough trained people to advise all the independents that need this help.
To account for this, we have needed to be particularly diligent at bringing the right people into the business who are qualified in this area. It wasn’t easy, though. Finding everyone in the Manchester area, where we’re based, was nigh on impossible. Instead, we had to look further afield to find talent willing to move. Fortunately for us, this investment in expertise has been worth it, giving us the means to provide profitable, but fair, prices to our customers.
Ultimately, we want to help shape the future of the energy market and be part of a fairer model, one that doesn’t depend on six main suppliers. It’s time for services that repair the relationship between suppliers and consumers, and services that win customers over with great experiences, and better care.