Kiran Stacey Eon: Energy companies have to change

This morning, Ofgem announced it would probe pricing by the big six UK energy companies, amid concerns that profit margins are soaring, with the customer losing out.

Today, the head of UK energy policy at one of those big six, Eon, has urged the company’s rivals to change their business models entirely. Answering Energy Source readers’ questions (posed before the Ofgem investigation was announced), Sara Vaughan said:

Energy companies are going to have to change. Traditionally, energy was all about building big central power stations and working out how best to get that power into people’s homes through a one-way transmission and distribution system.

While those centralised power stations are still going to be part of the future, it’s also clear that things are going to change substantially, with more emphasis placed on relationships with customers, who can take responsibility for their own energy usage for the first time.

Eon has still not commented on its pricing plans for next year, but Vaughan’s answer makes it clear that in the long run, Eon sees an end to the model that sees unilateral pricing being foisted on the consumer, and a move towards a more interactive relationship between the two.

Vaughan also risked angering others in the industry with some interesting comments about the government’s move to turn the carbon reduction commitment into a tax, which has outraged the business community. Vaughan did not go on the attack over these plans though, choosing instead to stress the positive points about turning the CRC into a tax (emboldening mine):

Simplifying the legislation behind the CRC is a much needed step for business energy users because it reduces the substantial administrative burden by lessening the impact of some of the complex recycling processes that were originally envisaged for CRC.

Levying CRC as a tax is likely to accelerate business investment in carbon abatement technologies by making investment decisions more transparent.

This is a very different tone to that struck by the EEF, the manufacturers’ federation, which called the move an “unsignalled and unwelcome” tax rise.

She goes on to clarify that the move has had a negative effect by putting further strain on businesses and creating uncertainty over government policy:

As a result of the multi-tiered approach to carbon abatement, the current policies are creating an inconsistent playing field for businesses.

But just to consider that there might be benefits to making the CRC a tax is a bold move, and may win Eon few friends among commercial energy users.

Vaughan also talked about what the problems of a carbon floor price are, and what are the big stumbling blocks to new nuclear. Check this blog throughout the morning for the full Q&A session.