‘We’re getting hammered’: The never-ending misery of energy bosses
Facing a maelstrom of public anger from consumers, politicians and the press, energy bosses are getting desperate. Today's news of a two-year price freeze from SSE shows just how grim things are getting.
SSE's decision is bad news for the 500 workers who will lose their jobs as a result. The environment will suffer because three planned offshore wind developments are being shelved.
But it has at least earned SSE a respite from the endless vilification of politicians. Energy secretary Ed Davey has praised the company, saying the move shows "the big energy firms are able to cut their costs and profits, and be confident about their ability to weather potential uncertainty in the wholesale markets, to give bill payers long-term price security".
Will the other players in the energy sector follow suit? Judging by the mood at a utilities industry conference in London, it doesn't seem likely.
Besuited executives from across the utilities industry have gathered in the City for a bit of collective hand-wringing. They have been through the ringer and they know it. "We've been battered", one moaned.
Four years ago, one sprightly energy comms female remembers, her clients were all about boasting about the size of the dividend they were paying out to shareholders. Now the messaging is about looking after the consumer, and not much else. "Belatedly", says RWE npower's chief executive Paul Massera, "energy companies are getting the message." It's taken outright condemnations of the industry in the national press for it to sink in.
The mood is depressed – but the nature of that depression takes different forms depending on which self-appointed victim of the popular crusade against the 'Big Six' you speak to. Some are "bemused" by journalists' pursuit of the industry – certainly the media are as much blamed by utility chiefs as the politicians. But when you ask these titans of industry what they think is causing MPs' anger, they come up with some eyebrow-raising answers.
"Education of politicians is quite hard work," says Don Leiper, director of new business at E.ON UK. "We are a very easy industry to have a go at, and that's wound itself up over the course of time. We don't really recognise, in the industry, we are those kinds of animals. But this has become the public perception."
Just as the Conservatives and Liberal Democrats are frantically engaged in policy differentiation in Westminster, so Leiper thinks the Big Six should be attempting the same thing. The more they disagree, he suggests, the more the public will realise they don't all act as one. In an industry where a sizeable chunk of energy consumers don't even know which company provides their energy, breaking the idea of a monopoly is going to prove challenging.
Take this man-on-the-street perspective from 'Fred' from Glasgow, cited in research by Professor Nick Pidgeon of Cardiff University. "The energy companies are profit-making concerns," 'Fred' tells us. "I don't know what incentive there is for them to encourage us to save energy that reduces their profits. So obviously they're going to be politically campaigning against it. I'm sure there are lots of regulations that could come in that could be against their profit."
Top of the list of these regulations is, of course, Ed Miliband's proposal of a price freeze. The policy electrified the Labour autumn conference in Brighton last year and has certainly got the industry all shook up. When you speak to energy bosses about this they splutter in indignation. In their view it is beyond contempt: a policy which is not only wide of the mark, in that it will not actually help consumers, but is actually likely to damage investment prospects. The politicians are the enemy. And while SSE may have decided to make cutbacks to guarantee a price freeze, their gambit won't change the fundamentals of the energy bosses' defensive campaign.
The main plank of this fight against public opinion is the threat that much-needed investment boosting Britain's energy infrastructure simply won't happen. Whether on or off the record, there's absolute consensus among those present that the more ministers impose market instability on the industry, the more consumers will end up paying in the long-term. The revisions to the energy companies obligation (Eco) pushed through by the coalition in response to Miliband's price freeze threat are one part of this, but the uncertainty goes much deeper than that. Investors want at least five years of stability, and this government simply isn't offering it. "It's our pensions that are at stake," one senior director points out. "We don't want them to gamble when they're investing the futures of you and me."
But Westminster is sceptical. Some MPs on the energy and climate change select committee have refused to buy the argument. Simon Stacey, director of energy services at RWE npower, thinks the Westminster brigade are simply following the whims of the electorate. "Politically it's hard for them to be saying the energy companies are doing a good job, because that probably isn't what the electorate perceive," he says. Whereas British firms have very low prices per unit compared to the rest of Europe, energy bills are very high. That's partly because of "behavioural stuff" – people leaving the lights on – and partly because homes remain horribly energy-inefficient. Thirty per cent of homes in the UK need their wall cavities doing. A further 30% could do with their loft insulation being boosted.
The continental comparison is an interesting one. One German delegate is full of scorn about the British, who she thinks are hopelessly inactive when it comes to making the investment decisions on a domestic level. If you're buying a £500,000 property your average German homeowner would not hesitate to add a further £20,000 to the mortgage in order to pay for better windows. In Britain that doesn't happen. There are more small-scale German renewable energy communities, too, especially in the north. Germans compete to win the honour of having the greenest house on the street. "That just doesn't happen in Britain."
Energy and climate change minister Greg Barker, who is responsible for energy efficiency measures schemes, did not impress most of those present. He seemed too scripted, it was claimed, and his optimistic hope for a 'Big 60,000' suppliers replacing the 'Big Six' was rejected as unrealistic. He came across as nothing more than that most insulting of words for anyone not in Westminster: a 'politician', plotting to placate the Big Six while actively encouraging challengers the emergence of rivals to challenge their dominance.
The biggest criticism made of politicians is not their ruthless demonisation of the energy sector, or even the limited success of the Green Deal (last month there were 18,000 Green Deal assessments made, of which just 33 resulted in finance deals). Instead the disappointment is the government's failure to make it easier for more infrastructure investment to take place.
If Britain is to adopt the enthusiastically green Germanic model there will have to be more localised energy generation – but that means spending more on the grid which transmits energy around the country. This can either be done by spending vast amounts on copper, which costs a vast amount of money, or spending a quite vast amount on more smart energy choices. Politicians are shying away from admitting to voters that either way, they're going to have to pay more – even if one option is much cheaper than the other. "There's a bitter pill to swallow and it's time to start making that explicit," one senior industry chief warns.
A vocal minority in the sector is sceptical about 'smart', ignoring the logic that smart metering will help the energy companies as well as consumers. Yes, there are upfront costs to paying for the installation of smart meters. And if you don't bother monitoring your energy, you will end up paying more. But a little bit of effort will result in falling bills. Energy firms won't have to bother paying for meter readings, and 90% of their call centre traffic (dealing with disputed bill payments) will disappear.
The public are never going to realise this – but then Britain's energy chiefs believe they're the victims of a witchhunt orchestrated by politicians and amplified by the press.
"We have to do a progressively better job of educating politicians," says Stacey, "because otherwise we get factually inaccurate soundbites cropping up all the time from people who feel they ought to be participating from the debate." That would never do. But it's the reality of the situation and the utilities sector is painfully aware of it.
"We're being hammered," one company director concedes. There doesn't seem to be any end in sight.
