Scot-Govt ministers mull ‘mebbes aye, mebbes naw’ expert report on Sturgeon’s planned new ‘Scottish Energy’ utility company

An independent expert report on the pros and cons of the Scot-Govt setting up a new state-owned national energy company has concluded that the plan is feasible.

But the report by management consultants E&Y says that ‘Scottish Energy Co.’ would face stiff competition from existing suppliers in a market almost entirely dominated by the Big McTwo –  ie Scottish Power and SSE.

The consultants lay-out two options – either an operational state corporation directly delivering Scottish gas and electricity supplies (answerable to Scot-Govt and parliament) or a ‘remote’ white-label company, or companies operated by local authorities who would provide energy services, eg;

Option 1: Scot-Govt owned company (eg ‘Scottish Energy’ or, ‘Sturgeon Power’)

Creation of a new limited company (by shares or guarantee). It would be 100% owned by Scot-Govt and governed by the Companies Act. Scot-Govt would appoint the chairman and board of directors to ensure its policy objectives and interests are reflected in the business plans. The board would oversee an executive management team.

Option 2: Federal model with creation of a Scot-Govt incorporated company with joint venture subsidiaries operated by individual local authorities.

The subsidiaries would ‘white label the supply of electricity and gas from the Energy Co. and bring a locally branded supply to the market. The products will be consistent across local councils. It would be up to individual councils whether they participate in the vehicle. The top company would be controlled by Scot-Govt (through Board representation as per a Government Company). Governance arrangements would need to be agreed for the regional subsidiaries, including delegated remit. Funding would be through SG (as shareholder) with the potential for third party funding (including through trading profits).

The EY says: “Based on our preliminary analysis, the set up costs for the Energy Co. could be in the range of £500,000 to more than £3 million.

“Actual costs will depend on the choice of operating model, the growth ambitions for the Energy Co. and several other key operational considerations that have yet to be determined. The year one operating costs are likely to be substantial, especially if the Energy Co. is operated as a Full Capability supplier. Based on comparable precedent companies the annual operating cost could be in the region of £2.8 million to £9 million.”

Back to the future?
Back to the future in 1933

In conclusion, EY state: “It is possible to establish an Energy Co. to achieve the stated objective of delivering competitively priced energy to help alleviate fuel poverty in Scotland.

“We also, however, recognise the challenges of doing this in a highly innovative, competitive and evolving energy retail market.

“<EU> State Aid restrictions <currently> prevent the Energy Co. from operating on a subsidised basis – therefore a commercial model is required for this to be successful.

“As a result, the over-riding strategic question for the Scot-Govt is how to make the new ‘Energy Co’. cost-competitive, in a low margin market.”

In order to be operating by March 2021 – ie by the end of the term of office for the present SNP-led minority Scot-Govt – ministers would have to make a decision to set up ‘Scottish Energy’ / ‘Sturgeon Power’ by Spring 2019.

The intention to set up the new ‘Scottish Energy’ utility by the end of this parliament (March 2021) was announced by First Minister Nicola Sturgeon on 10 October 2017.

Read the report;

10 Apr 2018

Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed