Going into the snap election both the Conservatives and Labour are proposing variants on an energy price cap. The details are yet to be confirmed, but it is likely that both plans will involve the regulator being able to set a maximum cap on standard variable tariffs, as with customers who are on prepayment meters. The Labour plan may be slightly different, but as there is approximately 0% of Jeremy Corbyn winning the election I will focus on what is expected to be the conservative policy.
Visualising energy market engagement – only 3 out of 10 members of Blazin Squad would have switched energy supplier in the past three years.
Also, 7.5 members of Blazin Squad would support government price controls for energy markets.
Theresa May has indicated she’s gearing up to intervene in retail energy markets, despite warnings from many experts and former energy regulators. She’s stuck to some extent between a rock and a hard place. If she does nothing she is criticised by the tabloids for failing to protect consumers. If she intervenes, for example with a price cap of some sort or limits to standard variable tariffs, she is likely to reduce competition in the market and prices will be higher in the long run. This is against the backdrop of widespread public dissatisfaction with energy markets, despite the fact that competition is increasing and small suppliers with innovative products are launching almost weekly.
It’s accepted wisdom among UK and European policy makers that one of the best ways to lower carbon emissions is through marketisation and cross-border trade. This manifests itself in the phenomenon of what can be called ‘market imagination’, where entirely new markets are created to serve particular policy goals. The problem with these types of markets is that, if designed badly, they can produce perverse outcomes. One such market is the European Guarantee of Origin system. Under this system one ‘certificate’ is created for every MWh of electricity generated from renewable sources. This market is terribly designed, and has meant that green electricity is being double sold and consumers are being mislead.
Last week the CMA published the latest findings of its Energy Market Investigation, the “Summary of provisional decision on remedies”. More simply, the document lays out what the CMA proposes should be done to “fix” the UK retail energy market, given its previous conclusions that many consumers overpay significantly. In this post I will attempt to lay out my thoughts on the remedies, and the extent to which they are good or horrifically bad ideas. Spoiler: one or two are horiffically bad. I also won’t deal with everything the document lays out, so sorry if anyone has particularly strong opinions on the locational adjustments for transmission losses.
It is often said that buying an energy tariff is confusing. This isn’t true, choosing an electricity tariff is simple and completely painless. Compared to virtually all other purchasing decisions, it’s seriously easy. The quality of the actual delivered service is identical and in the vast majority of ways the providers are exactly the same. Think about if instead you had to purchase a television. There are a huge number of different technologies, sizes, price points and brands. Contrast that to the complexity of choosing an electricity tariff. Tools such as price comparison websites do a great job of displaying the relevant data. Consumers can input a few facts about their house and in a couple of minutes they have a personalised quote where the estimated annual cost is displayed.
The Netherlands is a rare example of a country where consumers have a high willingness to pay for green power and a correspondingly high enrolment in green tariffs. By the end of 2014 64% of Dutch consumers had a green power contract for their electricity. This is by far the highest recorded enrolment out of any country in the world. It’s closest rival, New Zealand which has a large amount of renewables generated anyway, only has 26% of consumers enrolled. Despite this apparent success, renewable energy still comprises a small proportion of the total energy generated in the country. This case study will look at several of the factors which have driven the increase in households purchasing green electricity, before engaging in a discussion on whether these trends are uniquely Dutch, whether the program has been a success, and whether there are lessons which can be learned for other countries looking to support a demand side policy.