Self-supply seems a good path for a medium-large business customer to take. It is, though, a path that has until now gone untrod – in Scotland, businesses have been able to apply to supply their own since 2008, and the opportunity will also arise in England from April this year.
At the end of January 2017, pub retailer and brewer Greene King became the first non-household water customer to apply for a self-supply licence in England, partnering with water consultancy Waterscan, which will take on responsibility for retail functions. A week later, Earls Gate Water, partnering with Scottish water retailer Everflow, became the first to apply for a licence in Scotland.
According to Charles Yates, the head of competition at Scottish regulator the Water Industry Commission for Scotland (Wics), the timing has a lot to do with awareness. He explains: “Self-supply starting to happen in Scotland now is in part because the opening of the English market has made business customers think about what they should be doing and how they could be saving money.”
He tells Utility Week that it is an example of the competitive market “innovating to deliver improved value for money for customers”, and adds: “While there had been previous enquiries about self-supply before Earls Gate, they did not turn into licence applications. This may be because retailers and consultants weren’t pushing self-supply up as an option before in Scotland.”
Deterrents to take-up
Waterscan director Claire Yeates suggests there are many reasons why self-supply has not been widely taken up. For example, the language of compliance, regulation and obligation that is used in the application documents provokes an element of nervousness. And some businesses misunderstand what is meant by “retail services”, mistakenly believing they will be called on to physically supply their own water. She agrees that it isn’t an option which has been heavily promoted or publicised by retailers – which is unsurprising as it essentially promotes the competition and takes business away from them.
However, Everflow sees things differently. Customer services director Josh Gill believes self-supply is “genuinely the best way forward” for large users of water in Scotland and England. “Retailers often try to mask the processes with complexity, but it is a great way to save money,” he tells Utility Week. “However, we genuinely think it reduces customers’ costs if they are spending over £500,000 on water.”
Everflow believes large companies with the necessary resources can “really benefit” from a direct relationship with the wholesaler. “We’ve seen, far too often, cases where retailers can be a hindrance when it comes to supply issues,” says Gill. “So by us taking a support role rather than a lead in the discussions between wholesalers and customers, it places the customer back in control.”
The English regulator Ofwat has long been keen to make businesses aware of the self-supply option, flagging it up in a newsletter as the shadow market opened in October 2016. Senior director of customers and casework Richard Khaldi says self-supply would benefit any company that wants to save money by taking on the responsibility of providing retail services to their own premises.
“The wholesale contract will be on the same terms as all other retailers to ensure a level playing field in the open market,” he says. “This means they will pay the price that retailers pay to the water company without the margin added by the retailers in the open water market, and acquire certain rights, including membership of and voting rights in the running of the market operator.”
Ofwat is keen to promote further applications. “We can review the draft application and will answer any questions throughout the process,” Khaldi says. “The application process only opened in November, but we are now receiving enquiries from more potential applicants.”
The starting gun?
So will the market see a sudden influx of self-supply applications from businesses looking to interact directly with their wholesaler?
Yeates believes Greene King’s licence application has piqued other customers’ interest, and applications for further licences look set to rise as the market opens. She says there are “certainly” more self-supply deals on the horizon. “The press Greene King received has sparked an interest. We’ve had more conversations, and more businesses are now considering this as an option. Because of the Greene King deal, people are now thinking, ‘We’re a nationwide estate and we don’t use vast amounts of water, perhaps it’s an opportunity for us.’”
But even Greene King remains cautious and has not ruled out the traditional procurement option. Yeates says: “It is only when we’ve got real visibility with the market and the pricing structure that they will then make a decision as to which is the best route to go down.”