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Energy minnow shows that it can compete against big six

GIVEN the tendency of the UK's "big six" energy companies to attract negative headlines, it might be assumed there are less hostile sectors in which to launch a business.

LEADER: Chris Gauld, the 36-year-old chief executive at Spark Energy, believes there is room in the energy market for challengers. Picture: Andy Buchanan
LEADER: Chris Gauld, the 36-year-old chief executive at Spark Energy, believes there is room in the energy market for challengers. Picture: Andy Buchanan

But that has not deterred Spark Energy, the challenger which entered the industry in 2007.

In fact, in some respects the poor reputation which blights the major suppliers gave it the incentive to set up the business in the first place.

The company was founded on the belief there is simpler, more cost-effective and hassle-free way for consumers to receive gas and electricity.

And, in the early years at least, it focused purely on tenanted property, a sector its founders felt could be better served by the main energy suppliers.

The company was set up by people with direct experience of that industry who knew the difficulties that often arise when rented accommodation moves from one tenant to the next.

These include new tenants being billed for the previous occupant's use, incorrect meter readings and bills issued in the wrong name. The prices inherited by new tenants were also found to be far from competitive.

Chris Gauld, the 36-year-old chief executive who joined Spark from Edinburgh-based Grant Management, said the company was founded on creating a solution to a problem.

"The only way to solve it was to launch an energy company," he quips, only partly tongue in cheek.

Since then progress at Spark, which deals with major letting agents and inherits customers when properties move from one tenant to another, has been steady.

The business has built up a 100,000-home customer base, and continues to be well-funded.

Spark recently received a further £200,000 funding boost from the Scottish Enterprise Bank, taking the bank's total investment, to £855,000.

The company now employs 220 staff at its headquarters in Selkirk, and is on track to lift pre-tax profits to more than £1 million in the year to June, after delivering a maiden profit of £337,469 last year.

Turnover is expected to almost double to £80 million.

Another key milestone came for the company, which is moving into broadband services and extending its offer to social housing tenants, came when it struck a wholesale trading agreement with Morgan Stanley earlier this year. That deal gives the firm better terms for trading gas and electricity, which in turn allows it to offer customers more competitive prices.

Such progress suggests Canadian founder PJ Darling was on to something when he came up with the idea for Spark seven years ago.

Satisfied that the company was firmly achieving his vision, Mr Darling stepped down earlier this year and was replaced by Mr Gauld, its former managing director.

But there have been bumps for Spark along the way.

An Ofgem probe into Spark's compliance with its gas and electricity supply licences and consumer complaints regulations, remains in play.

Spark notes the investigation relates to "historic issues", which it says it has fully addressed as part of wider, £1.4 million drive to improve customer service.

That investment has involved the launch of customer review site, the recruitment of a director of customer experience, and regular surveys of letting agents and staff for feedback on its service.

A new billing format was also introduced with input from BoagMcCann, the consultant which advised Ofgem on how energy companies can their bills easier to understand.

Mr Gauld, who studied business with hospitality at university in Edinburgh, and built up a recruitment company before joining Grant, admits its service was previously not what it should have been.

But, pointing out that Spark recently scored more highly than the big six in a rating by consumer watchdog Which?, he insists it's moving in the right direction.

"We turned this around, because two years ago our customer service just wasn't what we wanted it to be. And we have had massive success in the last 12 months," Mr Gauld said.

"Two years ago our customers rated us two-and-a-half stars out of five - now they rate us 4.7."

"The energy sector doesn't put customers at the heart of what they do - they're about generating large amounts of energy and selling it," he said.

With bashing the big six has become something of national pastime, Mr Gauld admits it does help a challenger such as Spark stand apart in the eyes of consumers.

But he claims there is a risk the antipathy felt towards energy suppliers could lead to unwelcome regulation.

"We have to make sure our prices and services are better, because that is our key message," he said.

"And in some ways the criticism of the big six helps with that, because when the tenants move in they are pleased that it's us.

"It's definitely seen our growth accelerate and it's one of the reasons why we're pretty sure 40 per cent growth next year is conservative. There is this big opportunity for smaller suppliers like us to gain a bigger foothold.

"At the same time the issue and risk is that utilities have become a political hot potato and a press item as well. The risk is more that the political and the media piece creates some sort of regulatory and knee-jerk reaction which isn't well considered, which might help the big six but not the small suppliers."

Mr Gauld also claimed there is a need for a broader understanding of the way energy is charged, suggesting the debate on energy is "not particularly intelligent at the moment".

Asked to elaborate on the point, he said: "Well, there is a lot of beating up on energy companies for the prices, and how prices change. But there is not a particularly clear debate on what makes up those prices.

"There are a lot of green levies in customers' bills, there's the cost of transmitting and distributing energy that's in customers' bills, and all those costs are going up.

"So it's very often seen that if energy prices go up, that's the energy companies profiteering, and very often it's not. It's just that the input costs are going up."

But is it not the case that the big six are making big profits?

"What I think needs to happen is their profits need to be explained," he replied, "so that people can see where they are coming from and then see if something can be done about that if it's unfair.

"A blanket 'energy companies are making profits' [view] doesn't really help the consumer at the end of the day - all if does is make them angry.

"I think we should help people make really good informed decisions about who their energy supplier should be. I'm not sure that is really happening."

Mr Gauld notes that the bulk of Spark Energy's new customers come from the UK's letting agents which, between them, offer the company a constant flow of new business.

With an estimated 4.5 million tenanted properties in the UK, there is plenty of scope for growth.

Mr Gauld said Spark remains well supported by more than 100 angel investors, which have contributed to the £12 million in equity investment raised by Spark since 2007.

Mr Gauld said these investors remain convinced of the "potential to do something different in a regulated market".

And now that he is convinced the building phase of the business is complete, he does not envisage having to seek any further external funding.

"In the last 18 months we have been able to see ahead [that] we are going to be profitable, so we know we haven't got the need to raise funding to take the next step forward. You can make your plans to suit your customers rather than your bank balance."

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