IT’S an expensive business being poor.
While everyone is currently feeling the effects of rising inflation and stagnating wages, low-income households are having to pay around £500 more each year to access goods and services than wealthier ones.
Whether it is because they do not have internet access to track down the cheapest energy deals or have to take out a doorstep loan because they are not part of the banking system, those in poverty habitually pay a premium because of their poverty.
For Alister Steele this makes no sense and, having had responsibility for 8,000 homes in his former role as managing director of Castle Rock Edinvar Housing Association, he decided to do something about it.
Alongside a number of other housing associations, he realised that energy supply was one area in particular that could be collectively tackled and not-for-profit energy supplier Our Power was born with Mr Steele as chairman and former Renewable Power Exchange director Dawn Muspratt as chief executive.
“At Castle Rock we’d been looking at issues around poverty and fuel poverty for some time and we’d invested a lot in our housing stock in terms of energy efficiency,” Mr Steele says.
“We had a good energy advisory team that was brought in to help customers understand their energy use. Most of their time was spent with energy companies and billing issues and that got me thinking that there was an issue on the supply side.
“We gathered about half a dozen housing associations who all had an interest in this area and got some grant funding from the Scottish Government to do a bit of research on the issues and what the solutions could be.
“We didn’t go into that with the idea that we wanted to set up our own supply company, but we came out thinking that that might be the solution.”
The main issue low-income households face when it comes to buying gas and electricity is that many of the big energy companies’ business practices discriminate against them.
For one, their best deals are reserved for those who are able to frequently switch provider when many low-income households are locked out of that process because they are less likely to have access to the internet than the general population.
For another, because many living below the poverty threshold may not have access to a bank account they have to pay their bills via a meter rather than direct debit, meaning, says Mr Steele, that “those on the lowest incomes were paying the most”.
Our Power - which is owned mainly by Scottish social housing providers but with a few local authorities and community organisations in the mix too - was well placed to address these issues because its ownership model means it has access to large numbers of low-income homes.
“Initially all our customer acquisition came from when a property became vacant,” Mr Steele says.
“We went in and put in a smart meter before the new tenant moved in, then the individual could choose to switch or stay with us.”
That allowed Our Power to take on between 800 and 1,000 new customers every month but, because “the thing we need to be sustainable in the energy sector is scale”, the company has made its tariff more widely available by going on a number of price comparison websites.
The result is that it is now supplying 20,000 households, with Mr Steele stressing that the mixed customer-base is crucial if the organisation is to be successful in its mission of “making energy fairer”.
“Our primary focus will always be on social hosing customers and also the private rented sector, where there can be deeper pockets of poverty,” he says.
“With any type of social enterprise we need a broad customer base. It’s not about cross-subsidising but we need customers from different socio-economic groups.
“Our focus will always be on people on lower incomes but to do that effectively we need a broader customer base.”
Further growth requires further investment and Our Power, which was initially funded through a commercial loan from the Scottish Government, has also received backing from Social Investment Scotland, the Joseph Rowntree and Esmee Fairbairn Foundations, and Tudor, Barrow Cadbury and Robertson Trusts.
At the end of last year it widened its investor-base further after raising £4.4m from 301 investors via a social purpose bond.
The point of all this investment is to bring on enough customers for the business to turn a profit by 2020, Our Power’s fourth year of operation.
With the organisation starting to make its first forays outside of Scotland, bringing on a Welsh housing association and nearing the completion of deals that will see it supply one local authority and two community energy initiatives in England, it is on course to achieve its target.
Crucially, once it is in profit, Our Power can start to use the money to make a sustainable difference to its customers’ lives.
“There are two ways we could use profits,” Mr Steele says.
“We could have a very low level of profit and give it back to customers through price or it might be used to take out fluctuations in the market so we don’t have to change our prices in line with wholesale prices.
“We can use profit as a mechanism to give price security. The management will ultimately decide how they want that to happen.”
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