The Power of “we” – Is the UK Switched on to Collective Switching?

It’s been just over a year since NLGN published its seminal paper arguing for collective switching to hit the UK following the success in Holland and Belgium. In February 2012, thePeoplesPower as well as Which? launched the UK’s first collective switching schemes to great excitement.

The concept was simple; by buying our energy as a collective, we can negotiate a fairer deal, saving UK households millions of pounds.  And the public bought it, well at least hundreds of thousands did.   But the initial excitement has now died down, with Labour’s recently launched Switch Together scheme garnering little if any attention in the media.

Has collective switching failed in the UK? Or has the public’s imagination, once captured, now ebbed away? Can the collective power of thousands of people change the dynamics in the energy industry? We think so – that’s why we formed thePeoplesPower.

thePeoplesPower (that’s us!)

One of the first to launch, thePeoplesPower received media attention for its trend-bucking and fresh-faced approach to the energy market.   A not-for-profit Community Interest Company run by volunteers, thePeoplesPower represented a break away from the opaque and fee driven culture in the energy market.

Unlike any price comparison website, or later, the Big Switch, thePeoplesPower declared their referral fees from the outset (charged to energy companies) at £2 per fuel switch to maximise savings for households.  Compared to the average market rate of £40-£70 this is extremely low. They are also the only collective switching service to commit to capping numbers, meaning all energy suppliers big and small can participate in the auction.

As a young  self financed community organisation, thePeoplesPower have managed without a big marketing budget and relied on volunteers to get started.

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thePeoplesPower also target the hard-to-reach and fuel poor – based on the belief that people dying from the cold or choosing whether to eat or heat is unacceptable in a civilised society.

As a learning organisation, thePeoplesPower is looking at new ways to reach the people most in need and increase the numbers of people signing up.

Switched On: thePeoplesPower are different – a not for profit organisation with a clear transparent business model and all referral fees fully declared.  Offering green electricity as an option will help thousands make the renewable energy switch.  The low referral fees will cut out the middleman and allow savings to be passed straight to the consumer.

Switched Off: thePeoplesPower auction is yet to happen.  The decision to have low referral fees though admirable, has meant thePeoplesPower have lost out on many of the collective switches organised by those looking for an additional income stream.

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For Peterborough Council’s award criteria: (opens in a new window)

Which? Big Switch

And it was a big one, initially. Harnessing the power of 38 degrees and Which?’s  huge membership bases, over a quarter of a million UK households registered for the Big Switch. But amid controversy over the referral fees that would see Which? making a massive profit from the collective switch, many of the major energy companies were put off. In the end Cooperative energy won the auction claiming to save subscribers an average £223 annually. But as a growing but small provider, Cooperative energy could only offer this deal to a maximum of 36,000 people, excluding hundreds of thousands from the offer.

Switched On: This was a major campaign which created a real buzz around collective switching, and switching in general – a major achievement in a country where millions of pounds are lost to energy switching inertia.

Switched Off: Many were angered by the fact that Which? were making “excessive” money out of what was supposed to be a money-saving exercise (they charged a £40 referral fee). It also failed to secure a market leading deal for it’s subscribers. Lastly, criticisms were levelled at Which? when it emerged that their deal calculator failed to inform subscribers they were liable to exit fees- meaning some people lost out from switching.
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Which? would like the following clarifications to be made …

In response to the point about excessive profits:

Which? says: Two points to raise here: 1) There was never a question of us making a massive profit. We aimed to cover our costs, which were significant and 2) the reasons for the energy companies that didn’t participate were varied – and in the main most simply didn’t want to – or weren’t able to – reduce their uncompetitive prices.
In the end Cooperative energy won the auction claiming to save subscribers an average £223 annually. In fact the average saving offered was £123 but the actual average saving made by those who switched was £223).

In response to the point about the Cooperative deals not being available to everyone:

Which? says This isn’t correct, everyone who wanted the Cooperative deals got them. Furthermore Which? ran a whole of market comparison for everyone who provided tariff and usage data. If there was a cheaper deal for any individual than the Cooperative’s, they were told about it. And if they were using more expensive account management/payment methods than online direct debit they were told about the prices of the best deals on those too.

In response to the point about Which not securing a market leading deal:

Which? says
This isn’t correct – the Co-op’s deal was market-leading on the auction day and in fact cheaper for more people than First Utility’s spoiler deal  launched the next day as this was targeted at high users.

In response  criticisms were levelled at Which? when it emerged that their deal calculator failed to inform subscribers they were liable to exit fees- meaning some people lost out from switching.

Which? says this isn’t correct – unlike some other schemes that have made no mention of Exit fees whatsoever, when people provided tariff and usage data for tariffs with an exit fee we asked people if it still applied – and they told us yes or no. Because of the variability of exit fee timings on a tariff – they can be until the end of the tariff or until a set point since sign-up e.g. 6 months or a year – no switching site is able to build them into the calculations. So when we sent the results out we reminded those who said they had an exit fee to build that into their decision-making. Those who said ‘no the fee no longer applies’ were reminded that they were on tariffs which could have an exit fee applying, and advised to check it.

EnergyHelpline’s Huge Switch

Following Which?’s auction, but with substantially less media coverage, energyhelpline launched the Huge Switch. Running to a much faster timetable, the Huge Switch saved 8,540 subscribers on average £131 a year, within one week.

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Switched On: It was relatively quick and painless as collective switches go, and saved its subscribers a bit of cash.

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The Eden Project’s Cornwall Together

Launched as a partnership between public, community and charitable Cornish organisations, this scheme promised to target the hard to reach. On top of that 10% of money raised by the switch will go to a Cornish fund. So far over 4000 have registered to participate, and the auction is due to be held on the 29th of October. Time will tell if they are able to secure the 15% savings they hope to get.

Switched On: It’s a community based partnership, aiming to help the community – great stuff! Income generated will go to a local charity and the hard to reach and fuel poor will be targeted.

Switched Off: They have not declared their fees to energy suppliers and only 10% of income generated is going to a local fund – where’s the rest of it going? Community engagement is limited to Cornwall.
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Council-run collective switches (Various)

Following the lead of localised Cornwall Together, Ed Davey MP has encouraged councils across the country to set up collective switching schemes. Councils which have embraced this government-led collective switching movement include South Lakeland District Council. Their switch to Ovo Energy, in collaboration with iChoosr, (a Belgian based company which has successfully switched large numbers of people in Holland and Belgium) achieved savings ranging from £60-£200 for the 1669 people that registered. However the actual deal negotiated is not in the public domain.  Was this deal better than anything else available on the market?

Peterborough City Council has also launched a collective switching initiative, which it is leading on behalf of more than a dozen different councils. Their bargaining power could be immense, though could also mean that only the ‘Big Six’ will be able to participate in an auction due to the sheer numbers involved. The projected value for the partner is estimated at £1 to £10 million per year indicates they anticipate generating considerable income for themselves and the switching provider.

Switched On: Many UK households are angry at the government for failing to protect them from what they see as predatory profit making energy companies. Taking the reins and encouraging their constituents to switch energy providers is a welcome intervention.

Switched Off: It is unclear how much the switching partner stands to make from these ventures in referral fees, as no one has published this information. One can assume it will be in the region of millions of pounds. It’s a shame this will not be going into the pockets of UK consumers.

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Labour’s Switch Together

Launched at the Labour Party conference in October, Caroline Flint MP introduced Labour’s stab at collective switching. Boosted by a grassroots network of party activists and trade unions, Labour’s scheme could live up to its promise of targeting the hard-to-reach and fuel poor. Though, following a long spring and summer of collective switching, the media have appeared to lose interest in the concept, giving Labour’s effort little to no coverage. As such, sign ups have been slow. Labour also went with iChoosr as their switching provider, and though they have stated clearly that the Labour Party stands to make no profits from the scheme, the referral fees going to ichoosr have not been declared.

Switch On: Labour has the potential to mobilise a lot of people through its networks, and the commitment to making no profits is admirable in the context of the vast majority of other, money-making collective switching schemes.

Switched Off: iChoosr may well be making a great deal of money out of the scheme. If, as hoped, large numbers are generated, many small and green energy suppliers will be automatically excluded from negotiations.
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This brief summary shows that collective switching in the UK has certainly had mixed results. A major achievement remains the fact that the profile of switching has risen in UK households exponentially – this is no small feat.  Arguably, the culture of switching may finally have moved beyond the ‘switching classes.’

On the other hand, many in the energy industry have been cool, verging on hostile towards the collective switching movement and optimistic projections of savings have yet to be met. Indeed, with the lack of transparency of collective switching referral fees, have we simply created a new middleman?

With so much more to come from this new negotiation model, including first collective switches by thePeoplesPower, the Eden Project and a number of UK councils, the power of collective switching will soon be apparent for all to see.

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