Just a few years ago, developers could not choose their utilities firms. If their housing estate or business park was in Suffolk, it had to be Eastern Electricity, Anglian Water and British Gas Eastern. The privatisation of the utilities in the 1980s was meant to put a stop to these local monopolies, but it was not until 1998 that competition among gas, electricity and water suppliers really started to hot up. Now, developers can buy fuel and water from suppliers outside their area. Although the infrastructure remains the same, companies outside a supplier’s territory can send their electricity and gas down other company’s wires and pipes.
At the moment, there are about 30 energy companies competing for market share, and utilities’ sales forces are only too keen to strike special deals with developers and facilities managers. For example, even a medium-sized domestic customer in Manweb’s North-west region can save £48 a year by switching to Powergen for electricity and gas. Developers are in line for altogether more tempting deals.
Typical packages include a “dual fuel” package of discounted gas and electricity. Soon, many will be throwing in telecommunications cabling and services as a way to add value. By setting up these deals, developers can cut their overheads and give their marketing departments some extra ammunition. The utilities may also offer better as well as cheaper: for example, by supplying environment-friendly energy generated from sustainable resources to developers keen to establish their green credentials. Anglian Water, for one, is recycling water on a Beazer Homes estate near Blackburn.
How Beazer profited from grey water
Anglian installed a grey-water recycling system in 123 houses built by Beazer in Lower Darwen, near Blackburn in Lancashire, in rival North West Water’s territory.
The system takes all the water used by the 123 houses and treats it in a small works that fits into a building the size of a garage. Two-thirds of the treated water is returned to a nearby river, and the other third undergoes further treatment and disinfection and is returned to the housing where it is used for toilet flushing – the activity that uses the most household water. Drinking water is provided conventionally by North West Water and charged at the normal tariff.
A Beazer spokesperson says: “The environmental factor has the biggest appeal, even though people also save 30% on their water bills.” As a result, the Waterwise homes sold at a premium and more are planned.
The next trend in the utilities market will be the replacement of traditional suppliers with infrastructure companies and home services companies.
Infrastructure companies will be responsible for maintaining the electricity, gas and eventually water networks – the sort of thing that National Grid and Transco do now, whereas the home services companies will deal with customers and bill them, but will not necessarily own any of the infrastructure. These companies will also offer a bundle of non-utility services, including insurance, mortgages and security, to householders and business customers.
Many of these outfits will come from players new to the market, such as high-street retailers, banks and other big brands. They may sell low-margin commodities such as electricity and gas as loss leaders to encourage customers to take up a particular mortgage or insurance policy.
Developers, too, will be able to join the market by partnering with infrastructure companies to serve new housing estates, perhaps taking advantage of technologies such as grey-water recycling, local borehole water abstraction and micro-generation methods such as combined heat and power plants – in other words, local utility provision that in many respects by-passes the traditional utility network.
This might be attractive for developers wishing to service developments that can then be marketed as self-sufficient or environment-friendly, such as the Peabody Trust’s Beddington Zero Energy Development, which has its own power generation and water-recycling plant.
Developers could also work with suppliers to provide other niche services to domestic schemes, such as bundled home services.
These include plumbing, boiler servicing, electrical services, household insurance, cable television, Internet access and telecoms, or rock-bottom-price basic packages, which would probably provide a single service.
This sort of market segmentation is in its infancy, but developers need to start thinking about which sort of development would suit which niche package. Executive housing might tie in with a bundled home services package, while a local authority development might want a no-frills package.
Developers may also find themselves collaborating with utility “procurement hubs”, utilities companies that club together to buy supplies and squeeze down the price. The biggest hub was set up by ScottishPower, Spanish utility Endesa and 10 other European utilities. A smaller hub has been established by United Utilities and Northern Electric and Gas. There is also a utilities database, the UKDCS, that assists in collective utility procurement.
All of this means that developers have unprecedented opportunities to buy in services that offer lower prices and more choice to householders and businesses. Finding the best deal is not always easy, but gas and electricity regulator Ofgem publishes tariff data on its web site, www.ofgem.gov.uk.
Of course, just because a developer strikes a deal with a utility does not mean that it is insitu forever. Householders now have the power to switch suppliers, often through intermediaries such as Servista.com, Utilyx, Wattprice, Energy Auctions or BillBusters, just some of a growing host of web-based home (and business) utilities brokers. This means that a developer might set up a deal that commits householders to a certain supplier for the first year, after which they are free to move on.
As far as the world of electricity, gas, telecoms and water services is concerned, it is the customer who is, for the first time, firmly in the driving seat.
How to buy utilitiesChoosing a gas supplier
Paul Garrett is editor of Utility Week magazine.