National energy firm could run at loss
● Report warns it may struggle to undercut existing energy firms ● 183,000 Scots ‘extremely’ fuel poor
A national energy company for Scotland may struggle to turn a profit due to competition in the market, according to an official report into the proposals.
The study, by accountants EY, found that the initiative – which is aimed at providing cheaper energy to Scots struggling to pay utility bills – could run at a loss for “several years”.
The plans were unveiled by First Minister Nicola Sturgeon last year.
A proposed national energy company for Scotland may run at a loss for years after getting off the ground and face “significant challenges” establishing itself in a crowded market, an official report has found.
The flagship initiative is aimed at providing cheap energy for thousands of Scots in fuel poverty. But it may struggle to undercut dozens of firms already operating in Scotland and could not rely on taxpayers cash to prop it up, according to the report by accountancy giants EY.
It is possible that it could prove a success and emerge as a cheaper alternative, amid concerns over the dominance of the “big six” energy firms.
First Minister Nicola Sturgeon set out plans to delegates at the SNP conference in Glasgow last Autumn. There are currently about 2 million domestic gas customers in Scotland and 2.4 million who use electricity.
An estimated 183,000 of these customers (8 per cent) are classed as extremely fuel poor and a strategic case set out in the report yesterday says any new national energy firm should seek this size of customer base “at a minimum”.
But it warns that Scots are less likely to switch than elsewhere in the UK, with 10 per cent of customers north of the Border moving to better electricity deals in 2015, compared with 12 per cent Uk-wide.
“The Energy Co may operate with a net annual trading deficit over several years before sufficient scale is obtained to allow it to generate an ongoing surplus,” the report states.
And although the Scottish Government may be able to provide some loans to help the new company, state-aid rule would prevent ministers subsidising it with taxpayers’ cash at a loss.
But a new energy company would be well positioned to attract business if it could provide cheaper prices, with many customers having been stuck on the same deal for years because they are “disengaged” from the market.
There is also a stark warning that 42 energy firms are already operating in Scotland with half of them making a loss – including two of the big six.
“Margins can be limited,” the report adds. “This may represent significant challenges to establishing a self-financing Energy Co in a highly complex and competitive market.”
Ms Sturgeon has she wants the national energy company up and running before the next Holyrood elections in 2021.
“The Energy Co may operate … a trading deficit over several years before sufficient scale is obtained to allow it to generate an ongoing surplus”
EY REPORT