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Economy

The secret self-supply of Britain’s big six energy giants

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It’s only the fourth day of 2014 but already the big six have hit the headlines again. This time they come accused by the Labour party of pushing up bills and profits by buying electricity at higher than market prices, often from their own generators.

This follows charges of ‘green murder’ at the end of 2013 when some members of the big six failed to reduce energy bills following recent government changes to environmental levies. They are the latest episodes in a saga that has seen Britain’s energy giants scrambling to deflect attention away from themselves towards the nearest scapegoat they can find.

But don’t be fooled. The real problem at the heart of our energy market is not the help we give to the poor to heat their homes, nor the support we give to communities to build their own wind turbines. It is the size and structure of the big six themselves, and the secret world of energy ‘self-supply’ that exists at their core.

A market like no other

The origin of our current woes lies in the botched design of our energy market. Making a market out of a natural monopoly was never going to be easy, but we didn’t even stick to the original blueprint during the privatisation of the 1980s.

Whilst the pipes and wires (the National Grid) were separated off as planned, the government ultimately allowed the generation function (power stations) and the supply function (selling that power to us) to be held within single companies.

We should have had a large number of generators competing hard on price. We should have had a completely separate set of suppliers whose sole purpose was to get us the best deal by driving down prices and profits. Instead what we got was a handful of ‘vertically integrated’ giants controlling both generation and supply, and whose interests are simply not aligned with our own.

Secret self-supply

As a direct result of this market structure, most of the electricity a big six energy firm supplies to its customers today will come from its own power stations. Rather than going to the market, it simply supplies itself. For this reason – according to a report by consumer group Which? earlier this year – as little as 10% of all electrical consumption in the UK is openly traded on wholesale electricity exchanges.

This wouldn’t be quite so bad if we knew what was going on, but the self-supply of the big six is a secret and murky world. Their internal trading desks operate behind closed doors. The prices charged by the generation part of the business to the supply part of the business are not published.

What is the real price of electricity?

This lack of transparency means that we simply have no way of knowing what the real range of wholesale electricity prices are at any one time.

The best guess probably comes from price reporting agencies in the City. The price indices they compile are based on analysis of the small proportion of trades that do occur openly, and by calling their contacts in brokerage firms and the big six. But according to Which? there are “serious questions around the reliability and robustness” of these indices. They are incomplete at best and vulnerable to distortion at worst.

So when we are told our bills are going up because wholesale prices have increased, the reality is we are completely in the dark as to the real cause.

Manipulating profits and prices

The big six often point to the small profit margins made by their retail businesses as evidence of their supposed fair play. But once again, we’ve no way of knowing whether they’re simply pulling the wool over our eyes.

It is impossible to be confident about how much profit vertically-integrated supply businesses make”, says Which?, “because they can move margins up and down the value chain”. In other words, it’s possible that by artificially increasing the wholesale price used for internal self-supply, the big six could be charging us more for our energy at the same time as shifting profit from their supply arms to their generation arms.

Of course we can’t say for certain that this is happening. That’s the nature of a market lacking in transparency. But we do know that the big energy companies are able to profit more when prices to homes and businesses go up, and we do know that we are powerless to stop them with our current market set up.

The 2006 Centrica price rise

Analysis by Which? of the 2006 Centrica price rise shows how this has played out in the past. In that year, a 28.6% rise in gas prices resulted in the loss of 900,000 customers and an 8% reduction in consumer sales volumes. Yet overall the company’s revenues went up 15%. Those customers who stayed paid extra, and this more than compensated for the reduction in income resulting from those customers who left.

Such is the nature of our broken energy market and the dominance of the big six that an increase in prices and loss of almost a million customers can at the same time result in an overall gain in profit.

Fixing our broken energy market

So what will it take to fix our energy market? The closing months of 2013 saw the debate swing from the impact of environmental and social levies to the wisdom of a price freeze. Both, however, were distractions. For look behind Labour’s price freeze though, and you’ll see two proposals that at last make sense: break up the generation and supply arms of the vertically integrated energy companies and force all generators and suppliers to buy and sell their electricity in a single, open market.

Twenty-five years on from the privatisation of our energy system, it’s time to put transparency and competition at the core of our energy market, and end the dominance and secret self-supply of Britain’s big six once and for all.

Bruce Davis is a founder and retail director of Abundance Generation, a fellow at the Finance Lab and a research fellow at Bauman Institute. This article originally appeared on Abundance’s blog.

Further reading:

Energy market to be ‘simpler, fairer and cleaner’ in 2014

Utility bills remain biggest budget concern for households

61% of energy customers say desire for bigger profits behind price hikes

E.ON becomes final big six firm to reveal energy bill price hike with 3.7% increase

British energy consumers deserve more than political football

Economy

How Going Green Can Save A Company Money

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going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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Economy

Report: Green, Ethical and Socially Responsible Finance

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“The level of influence that ethical considerations have over consumer selection of financial services products and services is minimal, however, this is beginning to change. Younger consumers are more willing to pay extra for products provided by socially responsible companies.” Jessica Morley, Mintel’s Financial Services Analyst.

Consumer awareness of the impact consumerism has on society and the planet is increasing. In addition, the link between doing good and feeling good has never been clearer. Just 19% of people claim to not participate in any socially responsible activities.

As a result, the level of attention that people pay to the green and ethical claims made by products and providers is also increasing, meaning that such considerations play a greater role in the purchasing decision making process.

However, this is less true in the context of financial services, where people are much more concerned about the performance of a product rather than green and ethical factors. This is not to say, however, that they are not interested in the behaviour of financial service providers or in gaining more information about how firms behave responsibly.

This report focuses on why these consumer attitudes towards financial services providers exist and how they are changing. This includes examination of the wider economy and the current structure of the financial services sector.

Mintel’s exclusive consumer research looks at consumer participation in socially responsible activities, trust in the behaviour of financial services companies and attitudes towards green, ethical and socially responsible financial services products and providers. The report also considers consumer attitudes towards the social responsibilities of financial services firms and the green, ethical and socially responsible nature of new entrants.

There are some elements missing from this report, such as conducting socially responsible finance with OTC trading. We will cover these other topics in more detail in the future. You can research about Ameritrade if you want to know more ..

By this report today: call: 0203 416 4502 | email: iainooson[at]mintel.com

Report contents:

OVERVIEW
What you need to know
Report definition
EXECUTIVE SUMMARY
The market
Ethical financial services providers: A question of culture
Investment power
Consumers need convincing
The transformative potential of innovation
Consumers can demand change
The consumer
For financial products, performance is more important than principle
Competition from technology companies
Financial services firms perceived to be some of the least socially responsible
Repaying the social debt
Consumer trust is built on evidence
What we think
ISSUES AND INSIGHTS
Creating a more inclusive economy
The facts
The implications
Payments innovation helps fundraising go digital
The facts
The implications
The social debt of the financial crisis
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Ethical financial services providers: A question of culture
Investment power
Consumers need convincing
The transformative potential of innovation
Consumers can demand change
PUTTING FINANCIAL SERVICES IN AN ETHICAL CONTEXT
An ethical economy
An ethical financial sector
Ethical financial services providers
GREEN, ETHICAL AND SOCIALLY RESPONSIBLE ISSUES IN FINANCIAL SERVICES
The role of investing
Divestment
The change potential of pensions
The role of trust
Greater transparency informs decisions
Learning from past mistakes
The role of innovation
Payments innovation: Improving financial inclusion
Competition from new entrants
The power of new money
The role of the consumer
Consumers empowered to make a change
Aligning products with self
THE CONSUMER – WHAT YOU NEED TO KNOW
For financial products, performance is more important than ethics
Financial services firms perceived to be some of the least socially responsible
Competition from technology companies
Repaying the social debt
Consumer trust is built on evidence
Overall trust levels are high
THE ETHICAL CONSUMER – SOCIALLY RESPONSIBLE ACTIVITIES
Payments innovation can boost charitable donations
Consumer engagement in socially responsible activities is high
Healthier finances make it easier to go green
SOCIALLY RESPONSIBLE COMPANIES
37% unable to identify socially responsible companies
Building societies seen to be more responsible than banks….
….whilst short-term loan companies are at the bottom of the pile
CONSUMER TRUST IN THE BEHAVIOUR OF FINANCIAL SERVICES COMPANIES
Overall trust levels are high
Tax avoidance remains a major concern
The divestment movement
Nationwide significantly more trusted
Trust levels remain high
CONSUMER ATTITUDES TOWARDS GREEN AND ETHICAL FINANCIAL PRODUCTS
For financial products, performance is more important than principle
Socially conscious consumers are more concerned
CONSUMER ATTITUDES TOWARDS TRANSPARENCY
Strategy reports provide little insight for consumers
Lack of clarity regarding corporate culture causes concern
Consumers want more information
THE ROLE OF FINANCIAL SERVICES FIRMS IN SOCIETY
The social debt of the financial crisis
THE SOCIAL RESPONSIBILITIES OF FINANCIAL SERVICES FIRMS
For consumers, financial services firms play larger economic role
Promoting financial responsibility
CHALLENGER COMPANIES AND SOCIAL RESPONSIBILITY
Consumer trust is built on evidence
The alternative opportunity
The target customer

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