Here’s a question…
What industry sector enjoys an average pre tax profit margin of over 30%
Pays tax at an average rate of less than 20%
Operates a Monopoly
It’s the Energy sector, funnily enough… 
But it’s not the usual suspects.
It’s not the Big Six energy supply companies.
It’s the companies that own the Distribution Networks – or local grids.
The Big Six have a mere Oligopoly; they have some competition. The Distribution companies run actual monopolies.
You might think that OFGEM would be rather more on their case, regulating them more keenly than the supply sector – for that reason.
But the opposite seems to be the case.
On average these guys make an operating profit margin of almost 50%, and a pre tax profit margin of over 30% – that’s big by any standard, in any sector. And yet they are being allowed (by OFGEM) to impose price rises well above inflation – averaging 5.6% across the UK this year and as much as 11% in some areas.
These above inflation price rises are to continue for years to come, the current ‘agreement’ ends in 2015 – and then a new eight year agreement is expected.
A good chunk of recent energy bill increases for consumers has been due to increases from these Distribution companies.
When the government come up with the slightly knee jerk policy reaction of reducing tariff numbers (as they did the other week) in an attempt to tackle rising energy bills – they miss the point somewhat.
Firstly of course energy bills are rising due to factors such as global supply and demand (not because there are too many tariffs to choose from) and the real solution is to make more of our energy here in Britain, from our own resources.
Secondly energy bills are also rising, due to increased costs from Distribution companies – regulated monopoly operators the government seems oblivious to.
One last thing, worth knowing I think – almost all of these Distribution companies (85% by turnover) are now owned by foreign companies. The profits they make through their ‘regulated monopolies’, operating infrastructure bought and paid for by generations of Britons’ – is money flowing out of Britain.
Here’s a table for all Distribution companies, for the last two years. Showing the ownership and profit margins, and tax paid for each.
And here’s another table that shows the cash flowing out of Britain, to the owners of our local grids – by way of dividend payments to their parent companies.
Just thought I’d flag this up. Thought it was interesting.
It seems crazy to me, that we’ve got ourselves into a situation where our national infrastructure, which generations of Briton’s have paid for, is mostly in foreign hands, is an actual monopoly, ‘regulated’ apparently, and looks rather like a licence to print money and export it. Adding to the problem of rising bills and rising fuel poverty in Britain.
This is where privatisation and the ‘free market’ have taken us.
Cheers.
And ’tis my educated guess that they’ll whinge like mad if HMG should have the temerity to suggest that they start, you know, investing some of said profit in upgrading the distribution infrastructure!
Brilliant eye opening post, thanks
I had almost given up on this blog!
Today is the first time I have looked at it for weeks/months.
Mr Brown, I mean Mr Osborne is going to inform us tomorow that the best way to cut CO2 emissions is to build 20+ new gas fired powers stations.
I think Nigel Lawson must be breaking out the champagne, with his mate Peisner.
BTW it looks like the date stamp on comments are a day out.
Ahh – it was still set with BST – fixed now thanks
We set up a community energy scheme in West Yorkshire and know all about the DNO peril. Despite previously agreeing that our small 10kW wind turbine was OK and needed no local modifications to the network, they changed their mind and charged us £16K for two days work installing a new transformer.
Oh and we lost out on three weeks of FiT because it was raining on the day they were due to start work. Their workmen sat in the van all day before going home and couldn’t come back for another three weeks, despite the turbine being ready to go.
They seemingly do everything to deter the installation of small scale renewables, either that or they are using it as a cash cow to pay for maintenance they would otherwise have to do.
How did the world get to be so complicated? It all does my head in a bit, but the rising cost of energy has got to stop.
Where does all the money that goes out of the country go? Because with the exception of China and Brazil it sounds as if the rest of the world is going bust too. Nothing about the financial world makes sense to me.
I’m lost, but I don’t want to be lost and cold because I can’t pay my fuel bills!
Great post. Do you know if any MPs have raised this issue in the Commons?
Not as far as we know David.
But we are sending the info to Ed Davey and to his shadow in the hope that it might get picked up and acted on.
Cheers.
I too had almost given up on this blog (and ecotricity too tbh).
this is the kind of genuine insider information I want to hear from Ecotricity, good work!
Yep, my bad, been a bit too busy.
Have some more interesting stats lined up, coming soon.
Cheers.
Dear Dale – I am News Editor at eaem. Great interview you did recently with Nick Bent. We would like to run a story on this. Can you send us the statistics please, perhaps by email? Cheers, David
Enlightening comments from Dale regarding the tax rate paid by the distribution companies.
However, in the interests of transparency it would be interesting to know what effective tax rate is paid by the Ecotricty group of companies once the subsidies paid are taken into account?
Or to make it simple, as sole owner of the company perhaps Dale could just tell us how much in cash Ecotricity receives each year as a subsidy?
We know that subsidies are the only way to make this ineffective and inefficient industry pay owners a decent return but with the latest Ecotriity subsidy farm having just been refused planning permission following years of appeals let us hope that the golden years are over for this form of money making venture.
Hi Jean,
I care about the legacy I leave for future generations, and to hear you say you are pleased that Ecotricity have been refused planning permission for more wind farms makes me feel unoptomistic for the world in which my descendants might inhabit.
As to subsidies, I’d much prefer to think of my tax going to subsidise the green energy sector than the arms trade, or numerous other ineffecient expensive government departments. Ecotricity is trying against difficult odds to do something worthwhile both globally and locally and I sincerely hope it succeeds.
In regards to the distribution network getting funding, I would like to point out as a percentage its still less that what the tax payer has put into ecotricity. Its time the green movement stopped complaining and started acting. Its getting boring now with the constant attacks on other companies to try and justify increasing their own handouts, maybe ecotricity should be the market leader it claims to be and starts to generate cheap affordable renewable electricity without the need for tax payer support, if you could achieve this you will make a huge difference and get the ball rolling on the low carbon economy you hope to achieve. You need to focus more effort on research and development rather than government handouts and complaining.
Just for info im wondering where Dale went, at the start of ecotricity you were all about providing clean affordable renewable energy and now every time you blog something or promote something its money money money and someone’s got more than me. You’ve totally lost yourself and become the very thing you set Ecotricity up to fight against. Maybe you need to go sit on that hillside where you started in your caravan and think about where you lost control of what you wanted to achieve. If I wanted to read about how much money people have I would get the financial times, your blogs have become mundane and boring you don’t write about things that matter anymore, where is the building of a renewable future, where if the ecotricity plans for new turbines, where is the information on what your doing to convert the brown energy???. Serious man you’ve lost it and become the very person you hated all those years ago, sort yourself out.
If anyone’s lost the plot, it’s Alex.
First, get your facts right. Taxpayers don’t fund Ecotricity. “In 2001 the European Court of Justice ruled that feed-in tariffs (ROCs for UK wind) are not (even defined as) subsidies because no firm receives payment from the government and the cost is passed on to ratepayers; so this is NOT an item on the government’s budget.”
In stark contrast, tax breaks for fossil fuels, e.g. to encourage fracking for gas, ARE subsidies; they’re an item on that budget.
If Dale is struggling to control the destiny of Ecotricity, it is because of the UK government’s incompetent, privatised, so-called ‘market’ framework. It simply split up one natural monopoly into a string of more specialised monopolies and oligopolies. If you want to browbeat industry for not investing in research, you’re tilting at the wrong target:-
Energy firms active in the UK: research intensity, 2007/8 (7)
Firm R&D spend, £m R&D, % of sales
British Energy 15 0.5
E.ON 8 0.1
British Nuclear Fuels 7 0.8
Scottish & Southern 3.7 < 0.1
Scottish Power 1 99.9
Renewable Energy 1 22.8
EU state aid rules work on %, so the big guys get big bucks on anything they decide to call R&D, and the taxpayer does pay that.
I agree with Alex when he asked where Dale went. He never keeps his blog up to date anymore and I dont recall the last story in the papers either. He seems to have gone from public interaction and with it has lost his voice. And Dave the government does fund all renewable energy, have you not seen the price increase every few months. The money is taken from the bill payer and directed towards the green energy providers and generators. without this green providers could not survive. I think is is about time Dale got back on his soapbox and spoke again, but not about funding and who gets what but the things that matter like he used too. Alex raised a valid point when he told dale to go back where it started and ignite that forgotten voice again.
Hi Stuart, you must be kidding, we’ve had so many articles in the papers in the last few months, double page spreads, profiles news pieces – where are you looking if you think we’re not in the papers. There’s barely a week goes by……
OK my blog site got a bit neglected, you’ve got a point there, up until this latest post – that was due to being very busy, wrestling with the day job. My bad.
WRT bills and money, as above, recent price rises are all about rising global energy prices and rising Distribution costs – as per my post. Wind energy onshore is costing a fiver a year, not more and not rising fast at all.
And if you think that’s bad, have you any idea what the new nukes will cost – roughly 3 times as much for each unit of electricity generated – without decommissioning costs.
I suggest that would make a more appropriate target for your rising bill anxiety – it’s hideously expensive – and as you say – unable to survive without (massive is fair in this case) support.
Cheers.
“Dave the government does fund all renewable energy, have you not seen the price increase . . .”
No Stuart, as the European Court of Justice ruling established, this is not government funding. FiTs and ROCs are market interventions, engineered by the government to ensure that renewables get built. To be pedantic, these mechanisms are not strictly speaking subsidies. Another support measure is the merit order, and that’s not a public subsidy either.
The subject is given an airing here:- http://k.lenz.name/LB/?p=8748
Ofgem have told you what has caused the price rises, but you pretend that you know better? Read the facts for yourself. It is all in the public domain. The cost of buying gas drives up your energy bills by 4x the amount that renewable energy adds.
But Ofgem is a regulator with no teeth when it comes to trying to control the profit margins of the players in a monopoly (or oligopoly) so-called ‘market’, such as has been described in the article above.
The insanity of the privatisation of the utilities was evident before it even happened. The blind faith that ‘competition’ (which can never exist) would cut prices, is the product of deranged (ideological) minds.
I have no choice how I get my water or electricity, e.g. – Fortunately, I pay Welsh Water for my supply. They’re a not-for-profit business, and fitted a water meter free, which saved me £100 a year.
Unfortunately, Western Power Distribution deliver my electric. When I needed my supply to be changed from single to three phase, they quoted me £7,000! I could hardly ask a competitor what they would charge. After a combative technical discussion, they agreed the job should only cost £700. (from a pole 20 metres away!)
Hi Alex, again…
I’m not sure where you’re coming from to be honest.
This latest post from me is not about ‘money, money, money’ or about ‘who has how much’.
It’s about how dysfunctional Britain’s energy industry is. How public monopolies have turned private, and are now charging Brits what look to be unreasonable sums – to use the system that we all paid to build (when it was in public ownership).
It’s about how the media and politicians have focussed simply on the big energy companies – like the one you work for – and blamed them for price rises. Ignorant of the fact, it seems, that a big chunk of recent price rises came from these distribution companies whom OFGEM allows to make ‘otherworldy’ profit margins.
This seems to me to be a story worth telling. And something that ‘matters’.
After all, large sections of the media, along with people like yourself, like to make great play of the supposed ‘huge subsidies’ that wind energy receives, or costs the public – and that issue itself has been linked into rising energy prices. Dangerously.
The truth about what is actually driving those rising prices is actually rather important – lest the public at large jump to the kind of half cocked conclusions you appear to want them to – with you previous post.
Just for reference, the cost that onshore wind adds to a typical electricity bill in Britain today is less than a fiver a year. It is great value for money when you consider that rising gas prices have added £150 per year to the same bills in the last year or so.
You ask where are our plans for converting brown energy (to green) – You’ll be pleased to hear no doubt then that today the Secretary of State granted ecotricity planning permission for a 66MW onshore wind park. That’s enough to double our existing capacity.
That good enough for you….
Anyone that wants to see our plans for new windmills and our R&D can just look at our website, it’s all there – didn’t you know..
Cheers.
Hi Alex, I’m not sure if you read my post properly.
Your first line refers to the ‘network getting funding’ and how it’s less than what the ‘tax payer has put into ecotricity’.
But my post is not about funding by government. What I’ve flagged up is the way the Distribution part of the energy industry is working.
Privatised Monopoly providers, regulated by OFGEM, posting incredible levels of profit – and at the same time imposing above inflation price rises on bill payers, for years past and to come. That’s the gist of story.
It’s about a part of the energy industry unseen it would appear, by the media and by politicians, and of course the public.
Ecotricity has several projects in R&D. FYI.
This week we installed our prototype Urbine. A 6kW Vertical Axis machine.
We have the Seasraser, undergoing extensive modelling, in preparation for a sea trial.
And a device we simply call the black box, it’s aimed at households and creating something we like to think of as ‘intelligent demand’
I’m not sure where you’re coming from, your post seems to have an agenda of it’s own, you don’t seem to have read or understand what I’ve written, but have an amount of personal feeling you need to get off your chest.
What’s up…..
Cheers.
On the subject of blackbox have you seen Aquion energys solution.
It’s a battery made out of salt, cotton and carbon and their production line is starting.
It would seem a good fit morally as it doesn’t contain any chemical nasties, technically and safety wise
Firstly i must apologise im not after insulting you Im just having a go/rant. Lately all the blogs and posts from ecotricity are about industry monopoly, government rulings, finance and operations very little is written about your true core values which is providing clean renewable energy at affordable prices, ecotricity has many projects so why not focus on promoting what you are doing rather than everyone else to keep your independance and individuality. The papers are full of information like the blogs recently so why imitate you should (in my opinion) shout your own voice “here’s what i’m doing” and give people information on what can be done like you used to. Im probably the biggest pain in my employers ass as i constantly relate our prices and service to fuel poverty; each price increase pushes thousands of households into choosing between heat or food, and with the amount of subsidies offered to green energy, nuclear and coal the ever growing numbers of wind turbines force people to make that choice and its something that should not be a common occurrence in today’s world. The funding of energy supplies is the biggest threat to our industries future the more funding people get the more the price increases for the end customer (the rich can afford the trendy solar panels and heat pumps but the people who need them the most cannot). The way the industry finances itself at the customers expense drives me mental, you should be focused on finding a way to generate electricity cheaper than coal, the amount of time, money and effort you must got to promoting stories about other companies good/bad should in my opinion be spent on building more generation capacity rather than promoting propaganda. The news on the new wind park is great, 66mw is a lot of power, but in true value doesn’t reduce the overall price of a customer bill. The domestic VAWT is interesting though, I love building those things as Hugh Piggott taught me a lot over the years with his books and seminars, the Searaser needs better results than the neptune project (http://www.neptunerenewableenergy.com/news/). If you are truly serious about your R&D i will send you a load of info and projects I’ve collected over the past 2 years, its interesting how dirt and water can power everyday appliances if you know how to use it. Also hydrogen fuel cells are easy to build and reliable; there are so many other options to chose from than just wind. If you want the info I will post you a collection of files etc on CD so email the address to post it to if your interested to the email on this post, don’t want anything in return you just read it and let your R&D mind go mad especially if you like step by step guides on how to build cool green energy stuff.
I think what these posts demonstrate is that Ecotricity has a passionate army of intellegent people as customers.
As an intelgent passionate person myself I can say that I thrive on information and was fed up with the “shut up and pay” attitude of other providers.
Unfortunatly I think what people are trying to say here is that Ecotricity could easily fall into the same trap, I myself find out most of what Ecotricity are doing from news searches rather than the company I feel so passonatly about.
I think if someone could just put aside a litle time each week to do a chatty update of ecotricitys highs and lows it might just stave our hunger for information and keep us part of the dream of Ecotricity achiving unity between its demand and supply.
Keep up the good work.
Neil
hope the disc i sent gets to you at some point and you get to try some of the project; its given me some good ideas over the past 5 years so lets see what you can do. enjoy.