Delivering the Coalition's green ambitions

Energy companies expecting to be profitable in the coming decade and beyond have to live up to the fact that our market is changing, and changing dramatically. Those companies that don’t adapt to the new paradigm will lose out in this highly competitive market. The need to reduce carbon dioxide emissions, keep homes and businesses warm, well lit and working, along with the ever greater demands of the customer in a transforming retail market, all create a perfect storm in which the energy utility has to become something different.

The challenge is significant.  The UK has demanding carbon reduction targets of 34 per cent by 2020 and 80 per cent by 2050. Separately, the UK needs to deliver 15 per cent of all energy from renewable sources by 2020.  A significant proportion of this effort is expected to come from the power sector, which means around 30 per cent of generation will need to come from renewable power. With concerted effort and commitment from government and industry, they can be achieved.

British Gas already enjoys the position as the energy supplier with the lowest carbon intensity of the electricity that it produces and supplies to its customers. We have built one of the largest offshore wind farms in the world off the coast of Lincolnshire, and have started to build one nearby which will supply 170,000 British Gas customers.  We’ve also been awarded exclusive rights to develop offshore wind projects in the Irish Sea which could see up to 4.2GW of renewable energy being developed and used by 3 million British Gas homes, representing billions in investment.   

Wind energy is a proven technology that can generate significant amounts of power and is doing so already on a large scale.  But wind is not the only answer to the question of where we get our power from. The UK will require a diversity of sources of energy, and British Gas is seeking to match that diversity.

We have invested £2.3bn in a deal with EDF for a 20 per cent stake in British Energy, marking a long-term commitment to Britain’s nuclear future. We will be looking very closely over the coming years at investing in new nuclear in the UK. Nuclear can produce significant amounts of low-carbon base-load power, and we do not believe that 2050 carbon reduction targets can be met without new nuclear in the mix.  We support the Coalition’s determination to strengthen carbon prices.  This will help all low-carbon technologies, but broader market reform will also be required to reflect the need to deliver secure and flexible generation.

With a combination of wind and nuclear power, there will still be a need for flexible sources of power to supplement more intermittent renewable generation from wind. Efficient gas-fired power stations, such as our new world-class Langage power station in Devon, provide a reliable, lower-carbon and more flexible source of power than coal-fired stations. Thanks to a huge amount of investment in infrastructure and contracts over the past ten years, the UK has one of the most flexible gas markets in the world that can access gas via pipelines, Liquefied Natural Gas (LNG) as well as drawing on considerable assets still available in the North Sea.

To keep the lights on in the UK the investment challenge is enormous. British Gas will play a leading role and will seek to invest £1.5bn a year, every year, up until 2020 in making sure that the UK has enough gas and power to keep our homes and work places running.

The power we generate is just one side of the coin. The other side, how we consume energy, is just as important. It is here that we will see the biggest revolution in our industry, and a complete transformation of how consumers and energy suppliers interact.

The UK energy markets are the most competitive in the world. Over 100,000 customers switch supplier every week.  That’s over five million a year, far more than those switching bank accounts, mortgage providers and even mobile phone providers. If our business is to grow in the new energy world it has to be in response to consumer demand, providing services that people want, not forcing it upon them. This will involve new commercial partnerships and new approaches to products and services, creating a consumer revolution alongside the energy revolution.

We were the first supplier to provide iPhone apps for our customers to manage their accounts, we have dramatically improved our billing tools, and are constantly making it easier for customers to manage their energy.  We aim to be Britain’s trusted partner of choice.

There is often a degree of disbelief from politicians, media and customers towards energy companies and any commitment they make to deliver energy efficiency. We believe energy effiency makes commercial sense, and that British Gas’ record on efficiency speaks for itself.

We are the UK’s largest supplier of energy efficiency and have insulated over 2.7 million lofts and cavity walls in the last five years.  We are the UK’s leading installer of A-rated high-efficiency boilers and we’re exploring new technologies in partnership with other companies, including work to develop a next-generation fuel cell domestic boiler that produces both heat and electricity for homes.  

British Gas has the technical capability, the operational capacity, the financial strength and the track record to deliver energy makeovers in scale and with pace. We have 16 million residential customer accounts and one million business relationships, and are already delivering energy efficiency packages across the country including energy audits, cavity wall and loft insulation, energy efficient boilers and microgeneration.

Thanks largely to the work we have undertaken, our customers’ bills in the first half of this year were cheaper than the same period in 2009, and this was despite one of the coldest winters in the past 30 years.

To better understand the savings customers can make, in 2009 British Gas completed what we believe to be the largest ever piece of customer energy consumption research, gathering 74 million meter readings from nine million customers and analysing a sample of four million between 2006 and 2008.  Onto this data we overlaid information about actions customers have taken to improve the energy efficiency of their homes. After separating out the impact of price changes and weather, our data shows a reduction in gas consumption of 18 per cent when cavity wall insulation is installed, and an 18 per cent fall in gas consumption when energy-efficiency boilers are installed. The insights gained help us to target energy saving measures on those who will benefit most.

There is much we can do to make our homes and businesses more energy efficient. The ‘Green Deal’ is the flagship energy efficiency policy of the new coalition government and will create a significant new market place for energy efficiency services. It is currently envisaged that consumers will be able to access up to £6,500 in up-front funding that can be used to improve the energy efficiency of their homes and businesses, with the requirement to make repayments attached to the property and not the individual. Repayments are made from the money saved on energy bills and customers should be better off than they would otherwise have been as a result.

The Green Deal represents a step-change in the ambition for delivering energy efficiency measures, and comes with innovative new ways of financing installations.  It’s therefore a great opportunity for British Gas’ services and insulation business, and with our 9,500 engineers we are well placed to play a leading role in bringing this potentially transformational policy into fruition.

The national roll-out of smart meters, which record and display real time information on electricity and gas consumption, is key to helping customers understand and then reduce the energy they use. The government has made the commitment that every home in the country should have a smart meter by 2020. We think this can be achieved more quickly and are planning for a more rapid roll-out. Once more, British Gas is leading the market and has already installed 80,000 smart meters in homes and businesses. We aim to have two million installed in our customers’ homes by 2012.

But smart meters are more than just a technological addition to our customers’ homes. They offer a step change in the relationship between a consumer and the energy they consume. By displaying real-time data on energy consumed and how much this costs, customers can be empowered to take action. Energy efficiency then becomes an ever increasingly attractive option. They also allow energy companies to create more attractive consumer propositions — such as time of use tariffs so that energy is cheaper at times of lower demand — and help us manage the energy we generate better. Alongside the Green Deal, the consumer experience is set to transform.

Through our Green Streets programme and our partnerships with local authorities and housing associations we are not only engaging households, but entire communities.  Through smart meters, our relationship with our customers will be transformed. We are rapidly moving from being an organisation that supplies homes with gas and electricity, to a business that provides energy solutions.

These solutions start with help and advice, progress through to installing energy efficiency measures and ultimately facilitate the financing of these measures through savings delivered in the customer’s energy bill. British Gas understands that the customer is central to our business and we are changing to ensure we support their needs.

Gearóid Lane is Managing Director of British Gas Communities and New Energy.