It’s a common grumble: lured in by a big energy supplier offering a low tariff, you find your bills skyrocketing a year later when the agreement expires and the standard variable rate kicks in.
For one couple, David Pike and Karin Sode, the irritation became so great that they decided to start their own energy company.
People’s Energy, which started supplying households this week after crowdfunding nearly £500,000, aims to break the dominance of the big six energy suppliers – including British Gas, EDF and E.ON – with a model it says offers customers greater fairness and transparency.
While the company will source its energy from the same wholesale market as the established suppliers, Pike and Sode say their offer to consumers is different: customers will automatically get shares in the company, as well as a portion of its earnings – the couple promises to redistribute 75% of profits as an annual rebate.
They will also give customers representation on the board of directors and publish key data such as salaries and wholesale energy costs, says Pike, who previously worked as a consultant in the power industry. The standard variable rate will be around £129 cheaper than the big six average, he adds.
“We were fed up with our own energy supplier and it prompted us to think there really must be a better, fairer and simpler way of supplying energy to people that’s based on trust, not distrust,” says Pike. “The cynical business model which most suppliers operate on – get them in cheap, hope they’ll forget, and then make lots of money on the variable tariff – just seems inherently unfair and unjust.”
People’s Energy, which has committed to getting all of its electricity from renewable sources, is the latest in a string of new entrants into the UK energy market. Bulb, Octopus Energy and French power company Engie are among the companies to launch in the UK since 2011, riding a wave of ill-feeling towards established suppliers. A 2015 Guardian survey found the energy giants were more disliked even than banks, while a 2014 Ofgem report (pdf) suggested 43% of consumers did not trust energy suppliers to be open or transparent.
For Max Wakefield, director at campaign group Demand Energy Equality, greater competition in the sector is hugely welcome, for the environment as well as consumers. The energy giants have shown “absolutely no interest” in helping people understand how to reduce their energy usage, he says. And, since the big six remain heavily invested in existing energy infrastructure, their hold over the sector has slowed the shift towards renewables and smart tech, he adds.
“The quicker we can reduce their dominance over the energy sector as a whole, the quicker we can move towards a cleaner, more decentralised energy system that doesn’t involve huge amounts of money being sucked upwards and gobbled up by relatively few shareholders,” says Wakefield.
But are there risks to such a shake-up? Stephen Thomas, professor of energy policy at the University of Greenwich, says the position of the big six as both generators and sellers of energy gives them the confidence to invest in necessary infrastructure and make sure there is enough capacity to meet demand. In a very fragmented market, security of supply could suffer, he says.
Thomas is also cautious about the rate of change. While the market share of the major suppliers has slipped a little in recent years, it is still over 80%, he says, and people in general have shown themselves “reluctant to go away from the names they know”.
However, Pike and Sode – who had signed up 4,500 customers by this week – say the success of their crowdfunding campaign shows there is appetite for change. It’s a feeling reflected in the wider industry too, according to Pike, who says the company’s set-up costs were significantly reduced thanks to discounts from businesses who believed in their model. The answer to fairer energy, says Pike, is for people “to have more say”.
- This piece was amended on 1 September 2017 to clarify that Engie is a new entrant to the UK market