Many people look forward to winter. The cool, crisp days, the chance of picturesque snowscapes, and the imminent arrival of a break from work combined with the festive season.
However, while winter wonderment wows many, the energy sector is braced for a stormy onslaught, with politicians taking aim at the sector and the annual trial by media when energy prices go up.
With this knowledge hanging over him, Energy UK chief executive Lawrence Slade, the public face and spokesman for the sector, could be excused for dreading the winter months – especially in the wake of comments from the regulator which have cast doubt on whether his trade body is set up to effectively represent a challenged and changing sector.
The sector is once again in the political crosshairs, with the prime minister name checking energy as a failing market and threatening intervention. Prices from suppliers have gone up as we enter the heating season to the cries of foul play from consumer groups. The Competition and Markets Authority (CMA) has completed is damning two-year investigation into the sector and set out substantial remedies to make the market function fairly for all.
Brits voted to leave the EU, throwing yet more uncertainty into the mix, and adding more potential risk to a sector crying out for essential investment.
And rumours are swirling around that a harsh winter could push more smaller suppliers under, potentially threatening the already fragile relationship between consumers and the market.
However, despite all of this, Slade welcomes Utility Week into his central London office with warmth and a general calmness that has characterised his tenure in Energy UK’s top job.
This attribute is essential as he helps chart the sector’s reinvention to a trusted sector that is seen to be acting for consumers, rather than for shareholders. But Slade is aware of the number of significant challenges facing the industry.
“The CMA has done a lot of good things bur there is a lot more the industry needs to pick up on to really push this industry forward to the next degree.”
The CMA remedies are a thorny issue for many, with the database idea coming in for specific criticism. Ofgem has even stated that solution could be scrapped if trials are not successful.
“I don’t think we should go ahead with the database if you can’t prove it can work,” Slade says matter-of-factly. “That will ultimately be a waste of consumer’s money.”
He does agree that the sector needs to do more the engage with its customer base, and this comes despite “one of the best years for quite some time” in terms of switching numbers.
“It is important that customers can see and feel that they are benefitting from this as soon as possible.”
Slade says the key to achieving this is “all players” in the sector, including the companies, regulators and government, to “step up and see what we can really do”.
The reason for the optimism behind this statement comes from the “vibrant” state of the market – one that looks markedly different to that of only two years ago when the CMA began its probe. This is a good starting point to encourage consumer to engage in the market and “hit them [suppliers] where it hurts” if price or customer service is not deemed good enough.
The smaller suppliers, who now have a 15 per cent stake in the market, are helping to drive this increased engagement and growth in switching numbers. There are now more than 50 energy suppliers in the market, something Slade lauds, but there are rumours that the coming winter – predicted to be colder than previous winters – coupled with volatile prices, could force some of these independents out of business. [Utility Week spoke to Slade before retailer GB Energy Supply went out of business – see more here]. At the same time, this could further dampen engagement and switching, as consumers stick to what they know.
Slade is not concerned about the impact, saying “it comes under the heading of ‘it’s a competitive market’” and having faith in the recently beefed up supplier of last resort protocols of the regulator. These will now be put to the test as Ofgem now has to find homes for 160,000 former GB Energy Supply customers.
He is concerned about the impact of volatile wholesale price though, especially as the latest round of price rises begin to bite. “The thing that worries me is the transparency around how energy bills are made up and making sure as much as is possible there is an understanding of what’s driving energy prices.
“We’ve suffered as a sector in the past and we need a conversation around what the bill is, what’s driving price rises, how they feed through to customers and the different models. I do think that’s a crucial part in establishing higher levels of trust in the industry.
“It’s important to the customer that as an industry, with the government and the regulator we are clear what’s driving those price rises.”
Another key plank in building trust and increasing customer engagement will be the deployment of smart meters across more than 30 million domestic properties in the UK. However, the £11 billion rollout programme has already been beset by delays, with two-thirds of the Data and Communication Company (DCC) network finally going live, with the northern region stiff waiting to be switched on.
True to form, Slade strips away the hysteria around the subject, and tries to coolly assess the situation and chart a course for the industry.
“I think as an industry was obviously disappointed by the delay and at this stage of proceedings delays don’t help. We’ve got to be very sensible about this now. It’s not a case of picking fights, we’ve got to understand how we get to and over the next hurdle.”
Despite this, he acknowledges the importance of the coming months for the sector and the programme. “There is no getting away from it that the next 2 quarters are absolutely critical. That’s an unavoidable fact.”
What should not be done, in his opinion, is for the rollout programme to be changed. At least not yet. Opposition MPs, most notably Labour’s shadow energy minister Alan Whitehead, have called for a pause to the rollout to allow for a to review its timescales, feasibility and implementation.
Continuity and stability is Slade’s preferred option. “Let’s get the next two quarters out the way, let’s see how much progress we’ve made in that time, let’s see if we’ve got SMETS2 coming through and on the wall, let’s see when the next releases are planned for, let’s get more transparency in DCC processes and faith in their decision making, then we can look at the broader issues.
“The biggest call is for everyone to take a pragmatic approach to this. It’s obvious how important it is to the future of the industry and its clear we need to get this done, but let’s be sensible about this.”
He also dismisses any idea that, with the freedom that Brexit will grant the UK, that the smart meter target, of offering all households a smart meter by 2020 could be changed or missed as a “red herring”. “I don’t think that should come into it. If you look at what smart is going to bring to the industry, that in many respects is a good enough reason to be doing it anyway.”
In the wake of the year’s political shift, which saw the UK vote to leave the EU, David Cameron resigning as prime minister and Theresa May seeing off her fellow challengers to take the top job, and the creation of a new Conservative government, there are worries within the sector that the May government is all-to-eager to intervene in the market.
In her party conference speech, May set out her intention to help customers “stuck on the most expensive tariffs” – a sentiment echoed by business and energy secretary Greg Clark when he said: “Knowing that £2 billion of detriment exists, we have to act on this in the next few weeks and months.”
This action, if and when it comes from government, would be the wrong move, according the Slade. The key thing is for the government to allow the industry to implement the CMA’s remedies, and for them to bed in and have the opportunity to take effect.
“We’ve had two years of the CMA with tens of millions of pounds spent on the investigation and I think really we need to draw a bit of a breath, deliver on the remedies and actually get those working before we look at any other interventions. The best result for everyone is a market that works for everyone.
“That means we all have to build on the successes that we have had. There is a heck of a lot of work ongoing on delivering these. Let’s deliver it then judge it.”
Slade is keen for Energy UK to be the voice of the energy sector. It has more than 90 members, but Ofgem senior partner for consumers and competition Rachel Fletcher has questioned whether it is “sufficiently resourced and empowered” to meet the needs of the industry in the changing regulatory landscape.
Slade jokes that he “could say thank you very much for her recruitment drive,” before addressing the point more seriously and of his pride at the diverse nature of the trade association.
Slade adds that the role for Energy UK is set to increase as Ofgem moves towards a more principles based regulatory approach, and the trade association and the industry must be willing to step up into that role.
“We know, unfortunately, cross industry things do crop up. In a principles-based regulatory world, industry will have to look at these things more often and I think we have a duty and responsibility to make sure we’re dealing with these issues in the most effective manner.”
He goes on to say that, while a number of smaller energy companies are not members of Energy UK, its doors are “open to everyone” and he hopes to see more new members soon.
Slade’s positive tone, combined with a calm sense of realism is infectious, and a valuable asset given the significant challenges the sector faces. With the threat of political intervention growing, the impact that Brexit will have – and is already having – on the sector, having a calming influence at the top of the sector is more important than ever.
Energy UK’s members will expect Slade to be the figurehead during the potentially turbulent months ahead, and beyond that as the new government seeks to make its mark in the sector.
It will take more than a calm demeanour to meet this expectation with aplomb.