Bulb, the UK’s fastest-growing renewable energy supplier, has warned that demand for green energy could outstrip supply in the country within five years as consumers seek less polluting energy sources.
Amit Gudka and Hayden Wood, who founded the start-up green power and gas provider that has signed up 700,000 UK customers in the past year, said demand from consumers for renewable energy could cause substantial market tightness in the coming years. “There are a couple of scenarios where I think in 2023 we start getting to the point where demand for renewables could outstrip the generation of it,” Mr Gudka said.
The warning from the privately held company, whose recent £60m fundraising valued it at £400m, is another sign that consumer-led demand for green energy has outstripped expectations. Costs for renewable energy have fallen and start-up providers have been given greater freedom to challenge the Big Six UK energy suppliers.
A recent Client Earth survey carried out by YouGov found consumers favoured solar and offshore wind energy over fossil fuels by a long distance. Operating out of a shared office space in London’s Spitalfields, an area more closely associated with advertising agencies and bars than the once stodgy world of energy, the company has grown exponentially over the past year.
Founded in 2015 by Mr Gudka, a former Barclay’s energy trader, and Mr Wood, a former Bain consultant, it has gone from 50,000 customers to 750,000 in the past year, with monthly growth now accelerating to 100,000.
As solar power becomes increasingly economical, the company wants to see regulation supporting “microgeneration” of energy, where individuals who install solar panels in their own homes sell any excess back into the grid to help meet future demand. “We don’t think that energy needs to be generated in these large highly centralised power plants,” said Mr Wood.
“We think that the cost of solar panels is now so low that it could be generated in customers’ homes over the next 5-10 years.” The two co-founders, who own about 50 per cent of Bulb between them, denied an August report that they could already be looking to pursue an initial public offering or acquisition. “It feels like we’ve just started and just now got the platform in place to really have an impact on energy,” said Mr Gudka. “So we’re definitely not looking to sell.”
The company buys one unit of green electricity — solar, hydro or wind — for every unit of electricity it sells. It also buys one unit of green gas — methane produced from animal waste — for every ten it sells. The company buys more than 30 per cent of the green gas available on the UK market, which is still in its infancy, and is pushing to increase this proportion. It now employs 230 people and has ambitions to increase this to 600 over the next five years as it strives to compete with household names such as Centrica-owned British Gas. “We are a challenger, but . . . we want to be supplying energy to the mainstream.
Our aim is to supply 5m homes in the UK with renewable energy,” said Mr Gudka. The government and regulator have pushed to tackle the dominance of the Big Six (set to become the Big Five after the merger of SSE and Npower) suppliers in recent years, launching an “action plan” in 2014 to reduce barriers to growth for challengers. It has proved effective.
The market share of the incumbents has fallen from almost 100 per cent in 2011 to 78 per cent in the first quarter of this year, with medium and small suppliers at 22 per cent, up 5 percentage points from the same time in 2017. There were 72 suppliers on the market in March, compared with 14 in 2011. Whether Bulb can scale up at its current pace while keeping costs low will be a big question mark for its future. So far it has managed to keep tariffs low by being lighter and faster than the incumbents, despite renewable energy still being marginally more expensive than that derived from fossil fuels.
But increasing scale brings new hurdles for challengers. “You can offer cheaper tariffs as long as you have a tech savvy customer base and are exempt from policy costs,” said Ahmed Farman, an analyst at Jefferies. “But as smaller companies try and grow, the customer base becomes more diverse, which is quite a challenge.
Older legacy customers rely on phone use and so you need to set up a call centre and so forth.” Once challengers cross a threshold of 250,000 customers they are liable for certain environmental and social costs from which they are initially exempt. But despite its trendy image Bulb’s average customer age is now 48 years old, something the founders put down to making the switchover process simple and accessible. “We’re selling renewable energy to everyone across the country,” said Mr Wood. “It’s very evenly spread.”