Source: BBC Radio 4: Today Programme
URL: N/A
Date: 30/10/2013
Event: Ecotricity's Dale Vince on the UK's "dysfunctional" energy market
Attribution: BBC Radio 4
People:
John Humphrys: A significant number of the big energy companies are charging the maximum price they feel they can get away with to customers who they reckon won't switch under any circumstances, and that way they maintain an illusion of competitive pricing. That is what the boss of one of the smaller companies told MPs yesterday. He's Stephen Fitzpatrick and he runs Ovo Energy.
Stephen Fitzpatrick: If all the other energy companies, the Big Six, were to charge the same price that we were able to charge last year, then there would be a £3.7 billion saving, so I'm not entirely sure how all these guys are running their business, but we have invested in very up-to-date technology. We employ some very bright people in our trading team, and it sounds like we're managing to beat the professionals, here - buying energy at the right price, we're passing the savings on to customers.
John Humphrys: Well, Ovo isn't the only small energy company out there - another one is called Ecotricity and its boss is Dale Vince. Good morning to you.
Dale Vince: Good morning.
John Humphrys: How much cheaper can you sell your electricity?
Dale Vince: Currently, we're about £100 a year cheaper than the Big Six, following the price rise that - four of them have gone already and two will go shortly. We've announced a price freeze for the winter, and that's created the difference.
John Humphrys: Right, and how can you do it?
Dale Vince: Er, well, in our case it's because we've been investing our customer bill money in the building of new forms of green energy. It's a model we call "Bills into Mills" - it's the windmills that we're building. And we've reached about 40% self-generation from green sources. And this is insulating us from the rising price of fossil fuels in the global markets.
John Humphrys: But they say - the Big Six say the price of fuel, the price of the fuel they have to buy, isn't the biggest factor, by any means.
Dale Vince: Yeah, I think they've cited three factors - the rising cost of wholesale fossil fuels, government levies and the cost of distribution.
John Humphrys: Mm.
Dale Vince: And all three of those are valid. I think, in the case of wholesale price rises right now, if you look back 12 months then they're not justified in raising the retail prices because of wholesale movements in this year. We had a close look at that, and therefore announced our own price freeze.
John Humphrys: Right, so therefore they're ripping us off - is that your conclusion?
Dale Vince [laughs]: Well, you know, I think there's been a degree of that going on, ever since privatisation, back in the early '90s.
John Humphrys: To what extent? I mean, assuming that we accept that - and it's a fairly crude description of what they're doing, I admit - but assuming that they are ripping us off, to what extent?
Dale Vince: Um, to what extent... It's a job to say. I mean, it's true that they - they maintain a number of different tariffs, they could have 30 or 40 each, and there's a wide range of prices among them. They make it very confusing for customers and they make it very difficult for them to leave. And that's how they create this kind of inertia in the market, which puts people off switching. And I think that's probably one of the worst things they do, the most uncompetitive things that they do. And the static customer base, the ones that have been with them for ever, because they were inherited at privatisation, they are the ones that they rip off the worst.
John Humphrys: But they're perfectly happy, they say, to have competition people look at what they're doing.
Dale Vince: Yeah, but I - I think it's pretty pointless, myself, because it's happened before. And I don't really think you need an inquiry, to see that -
John Humphrys: Sorry, when you say that there's no point in having the Competition Commission look at it, because - why?
Dale Vince: Well, because I don't think you need an inquiry to tell you this market is dysfunctional. You just have to look at it - six big players have a 95% market share, and they seem to operate as a cartel. Prices go up -
John Humphrys: That's illegal.
Dale Vince: - in conjunction - absolutely, it is. Um, and you don't need an inquiry to tell you this market doesn't work. Privatisation in the energy sector has simply failed.
John Humphrys: Yeah, well obviously they say that there absolutely is not a cartel and that they do compete with each other. And you can compete as well, and this is the point, isn't it? I mean, if you small companies want to get bigger, there's nothing stopping you. We just, presumably, don't want to use your services.
Dale Vince: Yeah, I mean I'm not here complaining, I'm just trying to point out to you how I think the market is. And there are a number of barriers for people to switching - the plethora of tariffs is one thing, for example, the difficulties of switching is another. The Big Six, and the small guys to an extent as well, will make it difficult for a customer to leave, will make it confusing. And then you've got the fact that up until recently, or most winters recently, energy bills are not top of most people's agenda, that's not the thing that's on their mind -
John Humphrys: Well -
Dale Vince: - and so people don't switch, because of inertia.
John Humphrys: Well, we'll see what happens in the future. Dale Vince, thank you very much.