British Gas sees bright future in energy services

British Gas says its new energy services business will deliver higher returns than its energy supply arm. Meanwhile, National Grid has called for the reform of the energy markets to encourage more suppliers to move into energy services.

Turning energy suppliers into energy service companies (ESCos), which bundle together energy supply with services to improve energy efficiency, has long been touted as a way of cutting energy use.

An integrated business, so the logic goes, would have an economic incentive to help its customers use less energy.

The energy efficiency commitment (EEC) requires suppliers to offer efficiency services to customers but the required investments are small compared to the suppliers’ revenue. A handful of small players, supplying little or no energy, offer energy services, but few utilities have moved in this direction.

In May, British Gas bucked this trend by launching a new business offering low-carbon products and advice to its customers. In addition to the 100,000 A-rated boilers it installs each year, the company will offer solar thermal water heating systems.

British Gas sees the new venture as an opportunity to compensate for the expected decline in the amount of gas it will supply in the future as its customers cut back on energy use.

"We’ve accepted we will have to sell our customers fewer therms of gas in the future because of climate change," a spokesman said. "This new business is a direct revenue replacement for that. It’s a fundamental part of our business growth platform."

British Gas expects the business to deliver far higher returns than its energy supply arm. It estimates that the UK market for insulation, microgeneration, and other energy saving products will be worth "several billion pounds" a year.

One factor behind this optimism is the new requirement for house sellers to provide energy performance certificates, which recommend measures to improve energy efficiency of their property (ENDS Report 381, pp 40-41 ).

The certificates should raise awareness among homeowners and boost demand for low-carbon technologies. The company has trained over 500 engineers to conduct EPC surveys.

This, combined with its position as the largest participant in the EEC, should leave British Gas well placed to lead the market. It expects its EEC investment to double to around £200 million next year.

Another boost could come from local authorities. More than 40 councils have joined a British Gas scheme offering council tax rebates for householders who take up the company’s offer to install subsidised cavity wall insulation (ENDS Report 374, p 8 ).

Six authorities have expanded the scheme and are offering rebates for householders who fit solar thermal or photovoltaic panels.

The company expects more authorities to offer rebates in future. It wants the government to step in and provide funding to allow authorities to increase the rebate level.

Pedro Guertler, of the Association for the Conservation of Energy, welcomed the company’s move into energy services. "The big players are the ones who can drive this," he said. "This is a huge step forward. We’ll have to wait and see if the others begin to follow."

But British Gas is not alone in forecasting a shift towards energy services. National Grid has called on the government to change the way the markets are regulated and provide more incentives to encourage energy suppliers to help their customers save energy.

"We need to get rid of the incentives around shipping more gas and electricity and move towards helping customers reduce their energy consumption," said Gareth Llewellyn, CSR director at National Grid.

He pointed to the company’s experience in the US where the market is structured so that energy suppliers can make money from improving the energy efficiency of their customers.

"In the US we can generate revenue from going out and cutting energy," he said. "The EEC doesn’t seem to have been that successful because there is no specific link with economic returns. Companies just have to plough a certain amount of money into energy efficiency."

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