Nicola Sturgeon defied warning by Big Six energy firm over state competitor plan

Simon Johnson
Nicola Sturgeon announced plans for a state-owned energy firm in her SNP conference speech - EPA

Nicola Sturgeon defied objections from one of Scotland’s largest companies when she this week announced plans for a state-owned energy firm supplying homes nationwide, the Telegraph can disclose.

SSE, which was formerly Scottish and Southern Energy, said it was “not appropriate” for government to supply power on “a larger scale as it risks distorting the market and deterring private investment.”

In a submission to ministers about the Scottish Government’s draft energy strategy, which included the proposal for a state-owned power company, it argued there were different ways of improving “consumer value” that carried less risk to the public purse.

Meanwhile, energy market analysts predicted the First Minister’s plan would help households that had not switched suppliers but warned those who had sought out better deals were usually already making the "vast majority of savings it is possible to make".

SSE was one of the ‘Big Six’ energy companies that dominate the market to react to Ms Sturgeon’s announcement by publicly welcoming more competition.

However, the submissions to the draft strategy, which was published for consultation at the start of the year, suggest there are major reservations. SSE, which is headquartered in Perth, is one of the UK’s largest firms and is listed on the FTSE 100.

The logos of some of the Big Six energy firms Credit: PA

Ms Sturgeon told the Glasgow conference her government would set up a not-for-profit company by 2021that will sell renewable energy to consumers “as close to cost price as possible.” Her spokesman said it would initially sell only to Scottish customers but could expand to England.

Two years ago Nottingham City Council launched a similar but smaller initiative, Robin Hood Energy, which used the revenue generated to repay a loan taken out to set up the company.

Its initial tariffs were more than £200 cheaper than the average offered by the Big Six but were still more expensive than the best deals offered by some other smaller suppliers.

The same year the Scottish Government handed £2.5 million to a not-for-profit energy firm called Our Power Energy, which planned to sell power to some of Scotland’s most disadvantages communities.

In its submission to the energy strategy, SSE acknowledged there are “a few examples” of state-owned companies operating in the market “at a very small scale”.

But it asked for more clarity on what was intended by a “government-owned energy company”, before concluding: “This is not appropriate at a larger scale as it risks distorting the market and deterring private investment.”

The submission urged ministers to instead form “strategic partnerships” with the industry to achieve their aims. It also warned against a government-owned firm using financial incentives to encourage locally-owned energy projects as they “risk being more costly overall to tax and bill payers.”

SSE argued that Distribution Network Operators, firms that own and operate the distribution network of towers and cables that carry electricity to homes, are good at investing in expensive energy infrastructure with a “long cost recovery period.”

“We believe that these type of organisations can in many cases replicate what a government owned company would achieve in terms of consumer value, without the same level of risk,” it concluded.

Nicola Sturgeon has said her energy company would supply homes across Scotland Credit: PA

EDF, another of the ‘Big Six’, suggested in its submission that a government-owned company should focus on helping community energy and “capital intensive” projects get off the ground rather than supplying homes.

David Hunter, director of market studies at the energy market firm Schneider Electric, told BBC Scotland people who were being charged too much were generally those who had not switched suppliers and were on the most expensive standard variable tariff.

He suggested customers who had moved were unlikely to save much more as profit margins on competitive deals are “relatively low.”

Mr Hunter also said that independent suppliers had reduced the dominance of the Big Six suppliers over recent years but they could not always beat them on price because of the way the wholesale market worked.

A ScottishPower spokesman said: “We welcome new entrants in to this vibrant market. We offer competitive prices and we have worked hard to get most of our customers on to fixed price deals, well ahead of any of the other major suppliers.”

Dermot Nolan, chief executive of industry regulator Ofgem, welcomed “any form of potential new entry” into the market and predicted a government-owned firm would get a licence quickly.

A Scottish Government spokesman said: “The fact that 31 per cent of Scottish households were in fuel poverty in 2015, largely due to rising fuel prices, shows that the energy market is failing many households.

“The views given under the consultation will continue to feed in to the development of our new energy strategy and our plans for a new energy company. The responses and independent analysis report will be published in due course.”

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