Barney Cook is no stranger to hardship in the energy business, having seen his family business close following a bad deal with a big six supplier. After realising how ruthless the market can be, the young entrepreneur set out to do things his own way by launching a brand-new energy retailer – Eversmart.
Stretford-based Eversmart is one of more than 70 energy suppliers in an increasingly crowded market. There is no doubt the open market allows for fresh faces and competition, but it can and has been an unforgiving place for those small suppliers who bite off more than they can chew.
In the past year, there has been a spike in the number of smaller suppliers that have been unable to cope with market conditions, prompting concerns that the rules for market entry are too simple. So much so that Ofgem recently announced it was proposing new financial and customer service tests for suppliers seeking a supply licence. In notable cases like Iresa Energy, which ceased trading in July this year, complaints were a major factor in the company’s demise.
The process of applying for a licence “wasn’t too difficult”, says Cook, but it does require new starters to provide upfront investment to work with the distribution authorities.
Speaking to Utility Week, Cook is quick to emphasise that his company – which currently has 32,000 customers – only takes on customers it can handle. “If you look at our customer acquisition it is very spikey because we turn the taps on and off.”
Eversmart adapts its customer acquisition strategy to the time of year. Cook says the company is less “aggressive” in its acquisition through the winter months but will take on more customers in situations where say the wholesale price decreases. In other words, they only take on what they can afford.
Cook’s energy journey began when he was working with his father and brother at Go Greener – his family’s business. Go Greener was contracting with big six suppliers but was dealt a severe financial blow when one ended its contract with the smaller firm suddenly, after it had invested a significant amount of capital into the project. It was this experience that Cook says led him to launch Eversmart, to “repair the relationship between consumers and their energy supplier” and effectively “steal” customers from the big six – which, he feels, do not care about the smaller guys or consumers.
Cook acknowledges there has been innovation around systems and specialist companies that have been set up to offer retailers a cheaper route into the market. However, he believes there is a lack of expertise in pricing, especially in his local area of Manchester. This was a major disadvantage for him when setting up Eversmart.
Despite careful planning and preparation, smaller businesses with a reasonable-sized portfolio such as Eversmart can find themselves in deep water. Since Utility Week spoke to Cook, Eversmart was named by industry regulator Ofgem as one of the four suppliers that owe Renewables Obligation (RO) payments. Along with URE Energy, Eversmart must pay its outstanding obligations by 31 March next year.
With a £58.6 million total shortfall in RO payments, investigations have been launched into Economy Energy and Spark Energy and a mutualisation process has been triggered for the first time. In response to Ofgem’s announcement, an Eversmart spokesperson said: “We are aware of the Ofgem ruling and will abide by the terms set by the regulator.”
Nevertheless, during the interview Cook insists Eversmart has a handle on its risks. “We recognise our risks and we recognise how we can be sustainable. Although we have seen growth in certain months it doesn’t mean we are growing at an accelerated rate every month, so we are very measured in how many customers we take on. A big driver in our customer acquisition is our smart meter rollout.”
Smart meters are a hot topic in energy. The latest figures show suppliers have now installed 12.5 million SMETS1 meters – 7.1 million more than the 5.4 million originally intended. According to the National Audit Office (NAO), the government’s original ambition of offering 53 million smart meters in 30 million homes and small businesses by 2020 will not be met, and the cost of the rollout will likely “escalate beyond initial expectations”.
Eversmart has been “pro-smart meters” from its conception, says Cook, and he is keen to emphasise his company’s smart credentials. “We see the value for both consumer and supply business of having rich data sets that can assist us in terms of how we trade, hedge and manage our portfolio.”
For Cook, the educational benefits of smart meters to consumers are equally important – because they allow them to visualise their consumption and, therefore, make “informed” decisions to reduce energy use and save money, he says.
Another important topic in today’s energy world is the incoming price cap on standard variable tariffs (SVTs). In November, Ofgem set the final level of the incoming energy price cap at £1,137 – just £1 higher than the proposed amount.
Cook is philosophical about the cap and can see both advantages and disadvantages of the mechanism, which was designed to protect customers on the most expensive tariffs. “I need to place myself in the middle, I can see pros and cons to both as a business owner active in the energy market. For the consumer I 100 per cent recognise that for them doing absolutely nothing, they will save £76 a year and that’s a big win. However, I also fear that it could lead these people into a false sense of security in thinking they are on the best deal.”
Cook is also concerned that the cap could restrict the extent to which a company can hedge, or purchase energy ahead of time. “What we need to do is to be able to hedge out in line with the price cap rules to be able to lock in that gross margin,” he says.
Recently Eversmart announced its Family Saver Club tariff, a tariff that will let customers pay for their energy 12 months in advance. The supplier says its Family Saver Club tariff is £49 cheaper than the closest other fixed-rate deal, and £63 cheaper than the closest big six fixed-rate deal.
In its enthusiasm for its new product Eversmart, had to apologise to Money Saving Expert founder Martin Lewis after sending out an email implying he had endorsed the Family Saver Club. The email was sent in relation to Lewis talking about the idea of paying for a year’s worth of energy bills up front. After Lewis posted on Facebook denying he had endorsed it, Cook issued an apology on behalf of the company. “It won’t happen again, and we hope there are no hard feelings. We’re huge fans of Martin and his work,” he said.
Although smaller energy suppliers are facing increased hardship in today’s sometimes ruthless market, it is clear there are those who wish to stand out from the crowd and avoid the treacherous path others have tread. Eversmart has not always got it right, but it is certainly different in its strategy.
Eversmart criticised by Citizens Advice, see news, p13