Sparking the UK’s green energy revolution
The lethal air pollution and smog that affected London in the 1950s triggered enormous change in the way the UK generates electricity. The shift from conventional generation methods has transformed the country, which sourced as much as 25 percent of its electricity from renewable sources in 2015.
That is only slightly less than the 27 percent achieved in Germany, whose ambitious energy policy targeting 60 percent of energy from renewable sources by 2050 is perhaps better known. However, the UK is the only country to have legally binding carbon reduction targets (in the 2008 Climate Change Act) rather than voluntary targets set at international conventions like the Kyoto Protocol and the 2015 Paris Agreement. By law, the UK must cut carbon emissions by 80 percent from 1990 levels by 2050.
Political support was not the only factor behind the UK’s green energy revolution. The rapid growth of the industry was made possible by strong winds, once considered a nuisance by farmers that now earn extra income from turbines in their fields. And the early liberalization of its energy market allowed for independent suppliers specializing in renewable energy to emerge.
Competing with the “Big Six”
One of those is SmartestEnergy, a new kind of electricity company. It buys power from small, independent, mostly renewable energy producers, including those farmers with a single wind turbine, and sells it to large business consumers. Since its inception in 2001, SmartestEnergy has grown rapidly and now has an annual turnover of £1 billion, making it a serious competitor for the so-called “Big Six” energy companies in the UK that includes British Gas, EDF Energy and npower.
Despite only starting its supply business in 2008—after making a name for itself aggregating energy from small independent generators for sale on the wholesale market—SmartestEnergy now counts Toyota Manufacturing UK, retailer John Lewis Partnership and commercial property developer Land Securities among its customers. “If you’re a street-facing, public-facing brand, it’s important that you’re seen as having a renewable policy, and a cheap way to do that is consume renewable power rather than brown power,” says Robert Groves, chief executive at SmartestEnergy.
Green energy, guaranteed
SmartestEnergy was able to win over such firms by capitalizing on both increased demand for renewable power, and widespread dissatisfaction with the incumbent energy suppliers’ customer service and billing systems. Unlike the Big Six, which have to prioritize selling energy from their own oil, coal and nuclear power stations, SmartestEnergy doesn’t own any fixed assets and can therefore be more flexible, customer-oriented and innovative when it comes to energy contracts.
For example, SmartestEnergy enabled a Scottish department store chain to source their electricity exclusively from Scottish wind turbines, the first arrangement of its kind in the UK. Then in 2015, SmartestEnergy became the first company in the UK to offer a renewable electricity supply product backed by “origin certificates”, which guarantee that energy comes from specific renewable sources. This enables companies to prove their green credentials, and prevents false marketing, or “greenwashing”. This move won SmartestEnergy nominations for six industry accolades, including the Guardian Sustainable Business Awards, for improving transparency in the renewables market.
SmartestEnergy has two types of customers: the companies it supplies energy to, and generators. SmartestEnergy’s supply customers include some of the UK’s most sustainable companies. Generators are considered customers even though SmartestEnergy buys energy from them, because SmartestEnergy must compete with other aggregators to win power purchase agreements (PPAs) with them. Its generator customers range from developers with hundreds of megawatts’ worth of photovoltaic capacity right down to farmers with just one wind turbine on site.
With SmartestEnergy’s support, such farmers can earn an additional income, and more people can access renewable energy: a single wind turbine can meet the annual needs of over 1,400 households. Altogether, wind turbines produced 11 percent of the UK’s energy in 2015, enough to power over 8 million houses and equaling an annual reduction of 14 million tonnes of carbon. The UK’s offshore wind industry is now the largest in Europe.
Although supply and generator customers might appear to be quite different, their needs are actually quite similar. For example, accurate billing, one of SmartestEnergy’s strengths, means that consumers can manage their cash flow, while for generators it ensures reliable revenue. Getting customers’ bills right and on time—something the Big Six are often criticized for not doing—is one reason that around 90 percent of SmartestEnergy’s generation and large-scale supply customers renew their contracts.
"Managing the way we use energy more efficiently and reducing consumption is a key focus of continuing efforts to minimize the environmental impact of our manufacturing operations. SmartestEnergy’s innovative eBilling and account management platforms provide us with instant and easy access to the highly accurate data we need to achieve that," says Tony Walker, Deputy Managing Director of Toyota Manufacturing UK.
Japanese tea appraisal system: Matcha, Sencha, Bancha
Part of SmartestEnergy’s secret to delivering good customer service has been its recruitment of talent from the UK’s incumbent energy firms.
“People here are fantastic; everyone is very passionate about the roles they do. Everyone has a sense of belonging, and seeing that end-to-end business within a smaller energy company makes it feel so much more personal and I think that’s why everyone is so passionate about Smartest, because they’ve seen it grow,” says Louise Wapshare, vice president of finance, who joined SmartestEnergy in April after working at one of the Big Six companies.
A savvy human resources strategy also ensures that SmartestEnergy is able to retain talent: it has an annual staff turnover of eight percent, half the industry average. This year, SmartestEnergy was awarded the Gold Standard by Investors in People, a UK-accredited organization that provides a benchmark for companies that achieve excellence in people management. Only seven percent of companies that are audited achieve the Gold standard.
Part of staff satisfaction is due to an appraisal system that has no “fail” grade and that rewards a positive attitude and having an impact across teams. In a nod to SmartestEnergy’s Japanese parent company, Marubeni, staff are given a grade of either bancha, sencha, or matcha, reflecting varying grades of Japanese tea.
“The point is that they’re all drinkable, viable tea, they’re just at varying quality grades. Anyone can be matcha, you don’t have to be senior,” says Emma Baker, head of human resources at SmartestEnergy.
Innovation for future
By supplying renewable energy, SmartestEnergy is helping to lower energy prices in the UK by decoupling them from the oil price. It’s also helping to shift the industry towards local, decentralized, smart grids in which consumers can generate their own electricity, store it with home batteries and sell it back to the grid.
In the coming years, the problem of intermittent power supply from renewables will be overcome by innovations in battery technology, demand side response and pumped hydroelectric storage. SmartestEnergy is working together with its partners to support these innovative technologies, among others.
From a start-up in 2001, SmartestEnergy has come a long way. It is now aiming to double its profit after tax to £30 million by 2020.
“We’re growing very quickly and we’re going to continue growing into the future,” says CEO Groves.
As its growth underpins the UK’s renewable energy industry, achieving that goal would also help the UK to reach its own 2020 target of cutting its carbon emissions by 34 percent from 1990 levels. And that will mean cleaner air for everyone.