As the energy market continues to grow, we will grow with it.
The energy market is in transition. With significant production of energy from zero marginal cost technologies like renewables, value in the energy market is shifting with wholesale prices and forward curves dropping. This disruption will be significant and reshape the energy market in the UK, and with it creating new opportunities. Good Energy has a business model rooted in decentralised energy and is well positioned to take advantage of the opportunities that will arise in this new market landscape.
The drop in wholesale prices has created an opportunity for an influx of lower-price renewable energy providers, competing in a race to the bottom approach to build volume in the domestic market. To demonstrate this in the last two years the number of green tariffs has increased four-fold. In 2007 there were eight domestic suppliers, by the end of 2017 this had risen to 66 with a further 17 white label suppliers, totalling 83 and an increase of over 900%.
While the competitive trend has been to drop prices to attract customers in the short term, we do not see this as a sustainable approach in the long term, nor where the future of the market is heading. Good Energy’s focus is on offering customers an energy services model, to deliver on environment, security and cost benefits to the customers.
Within the business and FIT customer markets the competitive landscape has been steady. Many business customers and SMEs place higher value on bespoke solutions, and on partnering with suppliers whose green credentials and brands mirror their own.
Within FIT, there is a more concentrated pool of operators, split between the larger UK utility firms and smaller operators such as Good Energy who have achieved good market share by focussing on leading service and support to these micro-generator customers.
Regulatory & Political Environment
From 2015 to 2017, the UK government downgraded its financial and policy support for renewables construction and development. As a result of this along with changes in the asset development finance environment, Good Energy stepped away from new generation development in 2017.
The publication of the Government’s long-awaited Clean Growth Strategy in 2017 showed that disappointingly the country is on route to failing to meet the targets set in the 5th carbon budget. These targets form part of the UK’s obligations under the 2015 Paris Agreement and UN Framework Convention on Climate Change and 2008 Climate Change Act. This means they will need to find a way to hit the heat and transport targets they are missing.
To address this, the Government’s Strategy outlines a blueprint for increased Government investment in low-carbon energy systems, innovations and technologies. Investment in battery storage development and smart energy system innovation, as well as support for EVs by banning all new petrol and diesel cars and vans from 2040, are all welcome steps by the Government.
UK politicians have announced a planned price cap on default tariffs for retail consumers, introducing a draft bill for debate by parliamentary committees in March 2018. We believe that the Government is likely to exempt “green” tariffs which are making a real difference in their support to the market on innovation and their support to customers.
Increasing capacity and demand of renewables
Renewable energy generation in the UK continues to grow, accounting for over 29% of electricity generation in 2017, up from a quarter in 2016. Renewable capacity has grown 35% since 2014. During 2017, the UK achieved its first day without coal generated energy since the industrial revolution. We expect demand for energy generated from renewables and renewable capacity itself will continue to grow, driven by Government targets and decreasing technology costs over time. For example, today there are around 1 million customers in the UK with solar panels in their homes, the new prosumers. We believe that increasing electric vehicle use and improving economics of solar, will drive growth in green energy prosumers.
Good Energy’s renewable generation portfolio of 52.5MW of installed capacity continues to deliver good energy output and profit growth.
More green energy users
Businesses are under growing pressure to improve the sustainability of their energy use and meet corporate social responsibility targets, creating a buoyant market for supply of green energy to businesses. There is an ever-increasing realisation among businesses and consumers that the choice of their energy supplier can have a meaningful impact towards tackling climate change.
More and more UK energy users are choosing to buy services and products from organisations that have a higher environmental and social purpose. Most recent figures show that UK ethical spending has been growing at 3% to over £80 billion annually. Support for renewable energy increased to 79%, from 74% over a year. Opposition to renewables remained very low, at 4%.
Technology and Decentralisation
Developments in technology are an important dynamic in Good Energy’s marketplace. From advancements in generation technologies and smart-home energy saving solutions, through to innovations around local networking, low carbon transportation and energy storage, our market is rich with new and changing clean technologies. These technologies, together with the digitisation of energy networks, are changing the way that people and businesses will use energy into the future. Over time the costs of these technologies are expected to lower and fuel adoption rates. For example, the fully-installed cost for a 2 hour lithium ion battery is expected to reduce by 25% by 2025.
With these evolutions in the green energy market, Good Energy believes that the future value of the energy market lies in the provision of energy services within a decentralised market. Our vision is to become an expert integrator of green and technical services in the home and in businesses. To achieve this vision and to ensure that we evolve Good Energy to capture the opportunities arising from an energy market in transition, we are focussed on three strategic objectives.
Our first strategic objective is to build on our success to grow our core businesses. As a pioneer in the renewable energy market in the UK over the past 18 years, Good Energy’s FIT business is one of our most established and successful business, supporting our customers as an integrator with market-leading customer support and efficiency and a strong share of this market. As we look into the future, we will move away from a conventional utility model and towards that of an integrator in an increasingly decentralised market.
While we are committed to delivering our green energy at a reasonable price, we do not believe in fighting for customers solely by cutting price. Customer needs are changing, and we believe that our focus on enhancing and integrating our solutions is a sustainable approach that positions us to grow with our customers to meet their future demands.
Our second strategic objective is to economise our operations through our Fit-for-Growth (F4G) operating model. As we continue to grow, we recognise the need to focus on our efficiency and on enhancing our operations to evolve in an energy market in transition.
We commenced our F4G in 2017 to reduce our long term cost base by simplifying our operating model and upgrade our systems and processes. This will support our delivery of long term sustainable profitable growth. After implementing our new billing system, we have reviewed and identified further processes that can be improved to drive better efficiency and customer experience. This allows us to invest in our people to ensure that we will have great customer service, whilst reducing overall headcount.
Our third strategic objective is to invest in three key areas to drive future growth: Digital; New Product Design & Energy Services; and Research.
Investing in digital is central to development as a green integrator. In 2017 we increased our capabilities in digital and SMART with our CIS rollout and have laid the ground work for SMART metering. We have launched dedicated digital and SMART development programmes with senior leaders to lead these programmes going forward.
Good Energy is investing in new clean technology propositions to integrate with our existing propositions. In late 2017 we began a pilot project working with EV charging specialists NewMotion, to develop an EV charging proposition for Good Energy’s business and retail customers. In the first half of 2018, we will expand this to a trial working with a small group of business and retail customers to test different propositions.
We are developing our capacity to integrate energy storage within our proposition. In November 2017, we partnered with the Eden Project to deliver our first bespoke battery service pilot.
As the green energy market continues to grow and evolve, Good Energy will invest in growth opportunities that are consistent with our purpose, will generate revenue synergies with our existing business and allow us to meet our strategic objectives.