Adrian Merrick was an energy industry heavyweight, heading up EnergyAustralia’s retail business arm. So why has he left the big leagues to start a social enterprise energy retailer promising to direct more than half of its profits to community causes or renewable energy?
Energy retailing is becoming an increasingly tough gig, according to the founder of new start-up social enterprise Energy Locals.
Adrian Merrick, former group executive manager of retail at EnergyAustralia, says energy retailers are trying to increase profits from a product that’s being used less and less, thanks to efficiency improvements and technologies such as microgrids, solar and batteries.
It’s a tough environment to work in, he says, which makes it all the more striking that he’s left the comfort of his cushy corporate job with one of Australia’s biggest energy companies to battle it out with his own start-up.
He tells The Fifth Estate it’s more to do with being a “frustrated entrepreneur” than going through a moral crisis in such a profit-driven environment. Merrick’s move, though, also feels to have an air of jumping ship. Indeed, at the UBS Australian Resources, Energy & Utilities Conference Sydney in 2014, Merrick pointed to things such as falling usage, solar parity and microgrids as challenging traditional business models, warning the assembled energy industry players that reinvention was crucial.
The rise of the social enterprise
Merrick’s idea to run an energy retailer as a social enterprise – giving at least 50 per cent of profits to local causes or renewable energy development – taps into a growing market of disillusioned consumers, and could actually be the key to financial success.
Social enterprises have been popping up in a number of places recently, from real estate agents to cosmetics and sanitary product companies. These companies typically guarantee a proportion of their profits go to support a cause, typically related to the product or service. For example, toilet paper company Who Gives a Crap delivers half its profits to sanitation projects in the developing world, while real estate agency Property Initiatives gives its profits to a women’s housing charity.
Energy is a product that has the potential to sway a big part of the market, attracted by the potential of making a difference
“Essential” services like energy that have little differentiation between providers are natural attractors for social enterprise. If a company can offer a cost-competitive service then there’s a huge potential market that could make the switch, swayed by the notion that they’re giving back – simply by using something they need.
Combine this with the fact that energy retailing is a sector that suffers from both extremely low regard and minimal loyalty and you’ve got a solid business proposition.
Social enterprises are thriving on people feeling screwed by big corporates
Merrick says people feeling “screwed by big companies” has been a big reason for the rise of social enterprise. And the energy market is definitely one area where consumers feel screwed over, with fast rising prices, increasing disconnections, confusing plans and contracts, and sometimes unscrupulous practices that have seen ombudsman complaints bloom.
How does Energy Locals work
The key to Merrick’s business is that profit is made through a “fixed fee earning model”. Energy Locals takes a set fee for each customer it has, and there’s no extra profit to be made the more energy is used. This means it can be “a retailer that doesn’t think like a retailer”, which has enabled features such as a generous feed-in tariff for solar of 10c/kWh and advice to consumers on how to reduce energy use.
“If our data tells us solar is a good thing for you, we’ll tell you.”
There’s a few different ways the energy service is packaged.
It is a predominately partner-based service, so charities, community groups and even councils can sell energy to their network through Energy Locals, which takes a retainer for providing the service. The net profit goes to the partners to invest in their work. Examples of current partners organisations include Bicycle NSW, Ronald McDonald House, R U OK and community solar energy company Pingala.
While it seems like competition to community retailers such as ENOVA, Merrick says he sees his company as a specialist service provider that sits underneath community organisations and helps them avoid the time, cost and administration that would be involved in setting up and operating their own energy retailer, which comes with “literally thousands of obligations”.
“It avoids unnecessary duplication, unnecessary IT costs, the many different regulators to apply to. It’s time, it’s complexity, it’s cost. Communities can focus on what they do best; focus on getting more renewables into their communities.”
Energy Locals is also offering its service direct to end consumers, with profits invested in new local renewable energy.
But how much does it cost?
Now, onto the most important element for most energy users: cost. Can a service that is carbon neutral, which offers a high solar feed-in tariff and which provides half of profits to renewable or community projects really be cost-competitive with energy giants that only think in terms of the bottom line?
Merrick admits that Energy Locals might not be the cheapest in the market in all regions at all times, though he promises customers will always get a good deal, and there’s a guarantee that prices will never rise in order to increase profits.
What is valuable is the transparency he says consumers will get. This is particularly important in an energy retail market where what is the cheapest energy deal may not be such a bargain a year later.
As it stands there’s little transparency when bills rise. One company may see prices rise by four per cent while another will rise by 12 per cent, and finding out exactly why can be a headache.
“I think you could say we’re unique in the industry,” Merrick says. “There’s no mystery. Every price change can be explained in intricate detail.”
His target isn’t the bargain hunters who will have to keep a close eye on their retailer to make sure they continue to get a good deal, but those who’d like to “set and forget” and know there’ll be no surprises down the track.
“We absolutely understand cost is important,” he says. “And as we grow in scale we can spread the fixed cost. We’re not trying to get a million customers where all the money goes to bottom line.”
Energy Locals is currently available in NSW and South-East Queensland, with plans to soon expand into Victoria. Merrick says the company will wait until volatility decreases before moving into South Australia.