Green Business: Good Energy

Good energy
Juliet Davenport of Good Energy
In the latest in his exclusive series examining ethical businesses, Peter Salisbury reports on the rise of the leading eco-electricity supplier - and hears how it all started with a cocktail

Perhaps appropriately given its name, Good Energy’s story started over a cocktail. For chief executive Juliet Davenport, few hangovers have had such a lasting effect. Amid the clink and murmur of delegates at a European Union (EU) energy conference after-party, she met Martin Jakubowski, a Czech-German entrepreneur with “Bill Clintonesque” levels of charisma.

The pair struck up the conversation the setting called for, on the EU’s fledgling renewable energy strategy. Jakubowski wanted to invest in renewables to capitalise on the union’s plans to integrate and liberalise the continent’s energy markets and infrastructure. Davenport, a veteran energy advisor to both the European Commission and the UK government, had recently moved into private-sector consulting, after finding the bureaucracy of her earlier work stifling, unproductive and frustrating.

'We were both ranting,' she says. 'He was ranting one way, I was ranting the other and we eventually decided that we agreed with one another. That’s how it started. People didn’t get it, and governments weren’t going to do anything about it and you had to take [renewable energy] directly to individuals, and build up pressure that way.'

That chance meeting was one of several “eureka” moments for Davenport. The first came when, as an undergraduate studying atmospheric physics at Oxford, she stumbled across an article in a Sunday newspaper supplement on climate change.

'What struck me in the article was that we are taking the atmosphere out of its normal cycle,' she says. 'It normally goes between what it is like today and an ice age. But by increasing the amount of CO2 in the atmosphere, we are taking it somewhere else and we don’t actually know where it is going to settle.'

A degree in economics and several years in the “cloak and dagger” world of European energy politics later, she was ready to do something useful, rather than arguing the toss on nuclear and coal power plants and, on one notable occasion, a way of attaching Japanese whaling quotas to UN renewable energy strategies.

Jakubowski wanted to build or invest in wind, solar, biomass and hydro energy plants and sell the electricity they produced directly to consumers who were keen to invest in the future, cutting out big utility companies and governments. Davenport, hooked, agreed more or less on the spot, to head up the UK arm of the fund he was running, Wasserkraft und Regenerative Energieentwicklung (WRE), an apparently humorous play on the name of the German utility provider RWE.

By 1999, she was ready to launch Unit[e], a subsidiary of Monkton Group, which WRE had set up two years earlier to support its plans for expansion into the UK market. They had found renewable energy producers to supply the electricity, and were targeting a customer base of up to 1 million over their first decade. There was just one small problem: Jakubowski and his partner had run out of cash.

'Entrepreneurs just shouldn’t run companies,' Davenport says emphatically. 'They should start them up and let someone else run them, because basically they don’t look after the money. Their natural space is to grow, grow, run, make things bigger. But if they are not controlled, they will spend all the money which is exactly what happened.'

Unit[e] opened for business in September 1999; by November of the same year, WRE was ready to pull the plug on the company and its 2,000 customers. In crisis mode, Davenport engineered a board takeover of the firm, while looking for new investors to keep the company afloat. It would be two years before the board completed the takeover with the help of angel investor John Sellers, and three before the company started taking its current shape.

In many ways, 2002 was the year that Davenport had hoped 1999 would be: one which defined the shape of the company. In an action-packed 12-month period, Unit[e] held a stock offering which raised £600,000, largely through its customers, bought the ten-turbine Delabole wind farm in Cornwall, and got its own electricity supply license, having previously used renewable back-office subcontractor’s Utility Link for accreditation to sell its energy.

In 2003, Davenport took another big decision: it was, she realised, time to move on from parentheses and puns, and the company was renamed Good Energy. The transformation, from charismatic European-funded, growth-centric utility to small, UK-based renewable energy provider was nearly complete. All that was needed was one last eureka moment.

Today, she talks with great pride about the relationship Good Energy has with its microgeneration suppliers, the people who produce renewable electricity at home and sell the excess on to the company. That relationship was sparked by a call from Tony Marmont, a pilot-turned-professor whose Leicester energy farm she had visited earlier in the year.

Marmont had been selling the energy he didn’t use from the wind turbines, solar panels and small hydro-power station at Beacon farm to Germany’s EON, but they had decided the volume he was providing was too small to carry on.

'I said we’d take the power, and I wondered whether there was a possibility here, because it was so small and below the radar, the big six [utility providers] wouldn’t be interested,' she says. 'And I thought that maybe this was the way for us to buy our power; from small generators. It would divest our corporate risk, and build up a movement of small renewable generators.'

In 2004, the company launched HomeGen, a new service through which Good Energy would buy excess renewable energy produced by microgenerators, sell it into the grid and advise new or existing small generators on the best ways of building up their facilities, whatever they might be.

'They are non-professionals,' Davenport says. 'They don’t spend their lives generating electricity so we needed to make it easy for them. It was a source for our power, it enabled individuals to be part of what we were doing, and we could bring something above and beyond helping them in what was and is a complex electricity market.'

Today, the company works with more than 2,000 microgenerators who provide around 5 per cent of the electricity Good Energy sells. Meanwhile, Davenport believes that it is companies like Good Energy that convinced the government to introduced the Feed-In-Tarrif incentive for home renewables producers by showing such a scheme was feasible.

On a similar note, she says that the government’s Renewable Heat Incentive, unveiled in 2010, followed the lead of the Hot Rocs scheme Good Energy first piloted in 2008. Under HotRocs, the company pays its clients for the heat they produce in their own homes through solar thermal installations, funded by a premium it charges to its gas customers.

Again, she says, the scheme came about not because of company strategy but because customers wanted a gas product from Good Energy. With minimal advertising, the HotRocs scheme has been a solid, if not staggering, success. Now that the government is catching up, Davenport says, it is time to move on and innovate elsewhere, possibly by supporting bigger renewable heat schemes like the woodchip-fuelled biomass heat generators the company has invested in on behalf of its customers at a school in Bath and a swimming pool in Portishead, Bristol.

'We are looking at two or three other projects, and we are asking whether the gas product we sell should be supporting big renewable community heat products,' she says. 'Maybe that’s a bit more spot on in terms of changing the UK market, something the government is not doing so well.'

Whatever the new product is, the idea for it is just as likely come from outside the company as in. A lot of what Good Energy does, and does well, is to listen to its customers - a 2010 Which? magazine survey ranked the company top among UK energy providers for customer satisfaction.

As Davenport points out, the idea to sell shares to help fund the Delabole wind farm purchase didn’t come from her; rather, it was during her conversations with customers, when the company was so small that she was still picking up the phone, that she realised that most of the people who wanted to buy renewable energy also wanted the chance to invest in the company which provided them just that service.

This has paid literal and figurative dividends; share offerings in 2004 and 2007 were oversubscribed, and allowed the company to revamp the Delabole wind farm at a cost of £11.8m, more than doubling its capacity from 4 MW to 9.2 MW. In return, the company paid out its first ever dividend, of 2.5 pence a share in December 2010.

Good Energy is now considering releasing a bond to fund new projects which would add to the power it generates from the Delabole site. Davenport demurs on likely locations, but says that the schemes will again be wind-powered.

A key task for the company today is building its customer base, selling more electricity and generating more cash to fund new developments. So far, it has managed steady growth; profits after tax were about £100,000 in 2002, a figure which had increased to £500,000 by the end of 2010.

However, the cost of the company’s services may prove to be challenging during a period of slow economic growth. Electricity and gas for a four-bedroom house in London would cost around £970 a year to fuel with the cheapest utilities in the UK; Good Energy would charge as much as £1,220 a year, nearly 25 per cent more. With more and more households struggling to pay the bills, who will be able to afford Good Energy’s good energy? Again, Davenport says, the company will succeed through good customer service and improvements in its renewable portfolio management to continue reducing its premium.

'Our electricity only costs about 75p more a week than most utilities, thanks largely to Delabole, and that’s why we need to invest more in renewables; to keep our costs down,' she explains. 'What is interesting is that during the downturn, people’s price elasticity has completely changed but the people who signed up to Good Energy have stayed with us, and we have done a lot to help people to improve their energy efficiency, their options and our customers already use 10 per cent less energy than average.'

The 2008 launch of the Good Energy shop, which offers customers energy-saving solutions for the entire home, should help with this, and the company offers home insulation products through its website.

Meanwhile, Davenport believes that a recent spate of high oil and gas prices, due to unrest in the Middle East and the Japanese earthquake, are likely to reward existing renewable energy producers and drive more and more utilities and homeowners towards power sources which don't depend on international energy markets.

'We have already seen this with Delabole,' she says. 'We managed to cap our winter prices, when everybody else put their prices up. Obviously we are still affected by the overall market because Delabole is only 20 per cent of what we buy and we have wider power purchase agreement with a lot of other generators. But from our point of view, now is a great time to start investing in renewables. We are seeing it through lots of different companies: such as water companies and telecoms utilities looking at renewables to reduce their exposure to energy prices.'

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