Thanks for asking some really great questions about the wholesale energy market and how we buy our energy.
Our community manager
Question 1 from
PP provide so much information....I cannot think or see (for my wee brain) a real need to dig deeper, as it appears that PP are a transparent company, that's growing, hard to avoid the growing pains, shares those pains via the community whilst endeavouring to resolve glitches.
Maybe some info on BP's influence and support or their expectations as a shareholder.
Thanks very much for your comments. You’re right, we’re trying very hard to be transparent and as we grow we’ll inevitably make mistakes. We’re all human. But we genuinely aim to ensure we do the right thing by our Members, iron out the glitches as fast as we can and deliver a simple, fair and great value-for-money service.
Our values are to be:
- Smart. To make life easier and better, by using technology and processes cleverly;
- Sustainable. To improve our world. We want a clean environment and thriving, healthy planet; and
- Shared. Which means being open, transparent and involving our Community to help shape a better Pure Planet.
When we were building our original business plan, we knew that finding a strategic partner, who shared both our vision and principles, was key. BP’s investment in Pure Planet is part of its drive to support the low-carbon economy and renewables. It has also meant we have access to world class expertise when we buy energy for example - BP has one of the largest renewables trading teams anywhere in the world. And, of course, with BP’s shareholding, comes a global, financially-strong partner.
Question 2 from
Hi Chris, I share Strutt G’s thoughts about this young innovative energy supplier who are ‘doing things’ differently. My only question is, do Pure Planet only purchase energy through BP? Keep up the good work.
Thanks also for your comments. As mentioned to
In reply to your question, the answer is “Yes”. Our arrangement with BP is such that we only buy our renewable energy through them..BP has one of the world’s biggest renewable trading businesses and has access to the whole market on our and your behalf.
Question 3 from
I'm just trying to reconcile the fact that the electricity unit cost members pay is stable for months at a time, while your wholesale costs clearly fluctuate rapidly? I appreciate that buying in advance can mitigate here, but I'm not sure how the members' stable unit rate can be accurately linked to Pure Planets' more volatile rare without some degree of retrospective reconciliation?
Thanks for your question, which gets straight to the heart of managing the trading side of an energy supply business!
As you may be aware, there are quite a number of moving parts and assumptions being made between our estimate of the electricity of gas which our Members use and sending out a statement. I’ll try to set out the steps in order below and then (hopefully!?) get to the substance of your question.
Here’s what we do to supply a more stable price to our members.
- Each day we get a forecast of how much electricity and gas all our Members will use, by day, for the next year. For those interested, we get one daily volume for gas, but electricity is split into 48 half-hourly periods, so we get 365 x 48 = 17,520 estimates.
- For the longer-term purchasing, we add those forecasts up so we can see how much electricity and gas our Members will use each month over the next year. With this information we can purchase the electricity and gas “forward”, which means we agree a price now that we will pay for that energy in the future. This is referred to as “hedging”. We make those forward purchases gradually over time, so as we get closer to the date of “delivery”, we will have agreed a price for the majority of our Members’ expected usage.This means we have an increasingly clear idea of the cost of the electricity and gas as we get closer to the date of delivery.
- In the short-term, because the expected usage changes every day based on the weather, we then have to make small adjustments to the amount of electricity and gas we have bought, in order to match as close as possible the amount our Members are forecast to use. In line with most other electricity market participants (suppliers, generators, etc) we put the difference between the electricity we’ve already bought and the forecast into the daily auction, where we may be selling in some time periods and buying in others. We are automatically allocated a price for these volumes. This adds some uncertainty to the final electricity price, but typically represents a small percentage of the total cost and therefore is manageable. Gas is slightly easier, since this can be adjusted at any point up to the day the gas is actually being used. Again, in normal conditions (ie not a Beast-from-the-East scenario) this is also a relatively small percentage of the total, so should not influence the overall price significantly.
So, when we set our retail prices, we are taking into account the cost of the electricity and gas we’ve already purchased, plus the prices that we can see in the market for whatever extra we need purchase for around a year ahead. So, while prices fluctuate daily, hopefully that gives you an idea of how we’ve smoothed those very short-term changes with the longer-term hedges in order to get to a stable retail price which we can keep in ‘balance’ over a reasonable period of time.
I appreciate that’s quite a bit to be taking on board and might sound rather complicated. All at once, it is!
But if you have the time (and the inclination!) to follow all that through, I’m sure it will begin to make sense. If it doesn’t, then it will be my inadequate description which is causing any confusion.
Question 4 from
Hello Chris. Do you see a time in the near future when you and BP Lightsource will partner up and provide an install and fit payment service for PP customers?
Good question. One of the benefits of having BP as our strategic partner is that there are a number of potential synergies where there may be a chance of striking a partnership for the benefit of our Members. BP Lightsource is one and there are likely to be a number of others. Fundamentally, we will be looking to develop partnerships that deliver a great overall service and provide the best value to our Members- some of them will be with other BP related businesses in time, I hope, and others with different companies no doubt.
Question 5 from
I don’t have any questions, but thanks for doing what you do. PP is superb
Thanks so much!. It means a lot to us that we’re giving you an energy service you love. We’re always open to improve - so if you think we can do better, do tell us! It’s the commitment of the whole team here at Pure Planet and a great group of engaged Members which make it such a privilege and a pleasure to do what I do. Thank you.
Question 6 from
My first question, in a roundabout way links with Lenny's question (sorry Lenny not trying to hijack yours)
What proportion of your energy purchase is forward fixed (hedged) in price - in other words what happens if you sell more than the amount you've forward bought, and do you mix different lengths of fix to allow for changes in membership?
If not I'd be fascinated for any more detail on the buying process if it's not too commercially sensitive.
Is the long term strategy to take PP public?
I'm not an EV owner (I wish I could be), but there's a certain irony in a green company not offering incentives or a plan for EV owners. Why not?
regards and keep doing what you're doing.
Thanks to you too. I’m sure you’ll have a quick look through my reply to Lenny, but all being well I’ll add a little to that in response to your question too.
While the specifics of our hedging strategy have some commercial sensitivities, I hope the reply to
So, specifically, now we are getting close to the beginning of March, we have already bought all the electricity and gas we need for March - subject to the short-term “balancing” we need to do either on the same day or for the day ahead. In contrast, we’ve not yet bought any of the energy we need for next March, but we will soon.
Turning to your question about taking Pure Planet public, to be very honest with you, we’ve not considered that at all. We’ve been so focused on getting Pure Planet built, launched and thriving that we haven’t thought too much about the longer-term future. I think I can speak for the whole team when I say that currently we’re busy ensuring we’re delivering a great service to all our Members - whether their switch to us was super smooth a year ago, or whether there has been a glitch and we’re trying to resolve an issue for them.
We’re really proud of what we’ve been able to achieve to date, but we recognise there are still plenty of areas where we could make our Members’ experience better. So, that’s a long-winded way of saying we haven’t given any serious thought to what could happen in terms of an IPO.
What we can say is that we’re really excited about the potential evolution of the energy market, for the growth of renewables, and for Pure Planet to provide its Members with everything they will come to expect from their home energy service.
Finally, your point about EVs (I’d love to get one too eventually!) is a good one. I appreciate your nod to it being ironic, but actually Pure Planet’s tariff already offers fantastic value for EV drivers.
We’ve done some research - based on Citizens’ Advice recent model of EV usage in Britain - and we’ve found that Pure Planet’s standard offer already beats the market’s named EV tariffs hands down. Even if you charge only at night, you’d still be better off on Pure Planet’s regular rate, than you would be on a rival’s EV tariff. Have a look at this thread here for more.
All that said, you’ll not be surprised that doing something special for EV drivers is high up on our To Do list, and we want to make sure we provide an offer which is genuinely great, not just an EV tariff in name only.
Question 7 from
Can you clarify the timing of payments. We appear to pay you in advance, but presumably you don't pay wholesalers in advance. So you're sat on a lot of customers money. And if you go bust, we all stand to lose big time ?Hi
Thanks for your question. You are right in terms of the timing of payments. But we also commit to buying your energy in advance.
Like most independent suppliers, Pure Planet takes a monthly Direct Debit up front to account for your expected usage during the following month. This means that, broadly, if usage and payments are aligned, your usage draws down on your payment so at the end of the month you would have used an amount equivalent to what you paid at the beginning of the month. So, we effectively hold a declining balance.
However, we would note that often weather, estimates and changing usage patterns transpire to knock these calculations off course and then we may ask you to adjust your Direct Debit - up or down - at some point in the future to keep the account in balance.
However, understanding the situation in your final point is really important. Under the current regulation, energy consumers do not lose out if they have a positive account balance if their supplier ceases trading. Those balances are protected under Ofgem’s safety net and are transferred to the supplier who takes on responsibility for the failed supplier’s customers. A recent example of what happens can be found here.
Question 8 from
Hi Chris. Couple of questions: 1) finance are using emojis now? 2) In taking the courageous and ethically brilliant step to provide renewable energy at wholesale cost to your members - what cost risks keep you awake at night and is there anything we members can do to help PP keep ours costs as low as possible? (thanks for the recent cut in members rate btw!).
Great to hear from you :D:heart::o:up::checkmark:
1. Emojis (Please see above.)
2. All energy suppliers are exposed to the risk of estimates being used for the volumes of electricity and gas which they supply. So the best thing our Members can do to keep our, and therefore their, costs as low as possible is provide us with regular meter readings. Monthly is ideal. This really help keep your bill accurate - and really helps us forecast how much energy we need to buy on your behalf. Of course, once we all have smart meters, meter readings will be taken care of automatically.
But for now, just like visiting the dentist, don’t be embarrassed because it’s been a while since you last sent in a read, just send one in.
Though it’s nice to time your meter reading to coincide with your monthly statement, we can accept meter reads at any time during the month. They are always useful.
Oh, and when reading your meter - always be sure to mind the spiders!
Question 9 from
Possibly a slightly dull techy question here, but as a science teacher I'd be interested how the industry calculates the calorific value of the gas and to what extent that influences the price you, on behalf of us, pay for it.
You’re right it’s certainly a techy question, but definitely not dull (for me at least!). I should also caveat this by saying that I am by no means an expert on this particular subject! The calorific value (CV) of gas is calculated daily by National Grid for each of the Local Distribution Zones (LDZs) across the UK. The specific details of how it calculates these can be found here while the guidance for suppliers to use these values in their billing systems has been provided by Ofgem and can be found here.
To be frank, we are “price takers” when it comes to the CVs. By that I mean it is yet another variable which we cannot influence but contributes to the complexity of, and the fluctuations in, billing our Members. That said, we build an estimate of CV into our forecast for usage for our Members, so it is factored into our purchasing decisions.
Question 10 from
Hello again Chris.
Any chance of a limited open day where curious people like me can come and see the buying process in action, it ok reading about buying in advance and hedging but to see it in practice would be way more interesting.
What happens if you buy too much ? Is it a case of use it or lose it? How does the system balance your purchases with the usage of the members?
Thanks for the follow-on question. Let me have a think about whether we can show the buying process in action. I need to manage your expectations, however! It really isn’t very exciting. But we could see if there’s a way that we can bring it to life a little. I’ll leave the organisation with Marc and his capable hands.
In terms of what happens if you’ve bought too much (or too little) this is referred to, in electricity, as “Settlement”. What we aim to do each day is get as close as we can to the level of usage our Members are forecast to use. However, because there isn’t an accurate usage figure until well after the event, there is an ongoing settlement process happening. In summary, what happens is that if we have bought too much electricity or gas we get reimbursed for the excess by the “system”, but this is at a slightly punitive rate. So there’s an incentive to get the volume you buy for any day as accurately as possible.
The settlement system is slightly different in gas and electricity, but essentially works by calculating the expected usage of our Members based on the most accurate data for that day. In electricity this is done by settlement “runs”. What this means is that the expected usage of non-half-hourly (ie domestic) meters is calculated by using the predefined profiles, adjusted for weather. This is done five times for each day over a 14 month period, roughly as follows:
Consider the usage for 1 January 2018.
“SF” (the first settlement run) for 1 January 2018 is first produced around three weeks after (say 22 Jan).
Because new information is constantly coming in (ie more actual meter reads from Members), the settlement run is recalculated for 1 Jan about a month after SF.
“R1” for 1 January 2018 is calculated about a month after SF (ie ~22 Feb 2018).
Three more settlement runs are calculated for 1 Jan -
“R2” for 1 January 2018 is calculated about 3 months after R1 (ie ~22 May 2018).
“R3” for 1 January 2018 is calculated about 3 months after R2 (ie ~22 Aug 2018).
“RF” for 1 January 2018 is calculated about 6 months after R3 (ie ~22 Feb 2019).
RF becomes the final definitive view of usage, a princely 14 months after the day.
And this happens every day for every day!
Smart meters should help ease this burden, since there should be an accurate indication of domestic usage. However, rolling out smart meters to all households across the UK will take quite some time and I would speculate that it’s quite likely the current settlement system will not adjust for a good few years yet!