We’re resetting the energy market to make it simpler and smarter

Rachel Fletcher

WHEN energy consumers open the next bill, letter or email from their supplier, they should notice some major changes. On every energy bill, they will now receive personalised information about the cheapest tariff their supplier can offer. They will also receive an accurate projection of how much they will pay if they stay on their current tariff for the coming year, based on their own consumption. These are just some of the reforms that have been brought in by Ofgem, the energy regulator, to help everyone get the best deal possible in the energy market.

These reforms, along with the new rule that each energy supplier can only offer four simple tariffs for gas and for electricity, mean that everyone should be more confident that they can pick the best deal for them. We’ve also improved protection for consumers, including through binding standards of conduct which require suppliers to treat all consumers fairly. And there is now a ban on suppliers putting up their tariffs during fixed term deals. So “fixed means fixed”.

Before bringing in these reforms for a simpler, clearer and fairer energy market, we carried out more than 20 research projects looking at energy consumers’ attitudes and behaviour. The research shows widespread support for simplifying the market. For example, last year more than three in five consumers believed there were too many tariffs. Many consumers also find tariffs with differing pricing structures both off-putting and difficult to compare.

Finding they have switched to a higher priced energy deal has put some consumers off further engagement. Consumers have also told us that they have little trust in the energy suppliers, and research shows this trust is falling. We have proposed a full investigation of the market by the Competition and Markets Authority (CMA) to help rebuild this trust. The CMA’s investigation should identify any further steps required to make the market work in consumers’ interests.

Ofgem wants to get the market working so people pay no more than they need to for their energy, and are provided with good customer service. Resetting the market now is also the first step in the move to a smarter, more environmentally-friendly energy industry.

From next year, suppliers will begin a government programme to install smart meters in every home. These meters provide consumers with an opportunity to manage how much energy they consume, and when they use it. This allows them to save money (and reduce carbon emissions) if they avoid using energy at times when power is expensive. This new technology means consumers can control their energy bill in a much more powerful way, and it should help us all to limit the cost of decarbonising our energy industry and control bills for generations to come.

But this “smart revolution” will not deliver on its full potential if the majority of people lack the confidence to participate in the energy market. And it won’t happen unless vigorous competition pushes suppliers to find innovative ways to help consumers benefit from smart meters.

This is why we have put in place our reforms to make the market simpler, clearer and fairer. And it is why, in parallel with any CMA investigation, we will vigorously pursue further improvements such as faster, more accurate switching. This work needs to be complemented by energy suppliers getting behind our reforms, especially our requirement to treat their customers fairly. Only then can we rebuild trust in the industry and create the groundwork to capture the full benefits which new smart metering can provide.

Rachel Fletcher is senior partner, markets at Ofgem.