Building a retail energy market fit for the future

Following a year defined by high wholesale costs and supplier failures, Citizens Advice has announced it is launching an Energy Price Support Review which will explore in detail which consumers will need protection in the future and how best to support them.

Writing for Utility Week Gillian Cooper, the charity’s head of energy policy, discusses the key issues considered during a roundtable of senior industry representatives. The focus of the discussion centred on what the objectives of the future retail market should be, and what action is needed to get there.

The energy market over the last year has been defined by high wholesale energy prices, supplier failures and volatility. Over 30 suppliers have failed, leaving behind a multi-billion pound bill for all consumers to pick up. In April, prices increased for 22 million households by an average of 54%, and further severe price rises are almost certain in October.

Citizens Advice has been at the forefront of the response. We’ve provided advice and support for our clients to help them navigate the cost-of-living crisis, with contacts to our energy helpline tripling.

Across our service and all issues we helped 2.55 million people in person, by phone, email or web chat in 2021-22. We’ve set out how regulatory mistakes made a bad situation worse, and argued for targeted financial support to help people who’ve been hit hardest by rising bills.

Following the welcome announcement last month of further support, we’ll continue to track the impact of this crisis on our clients to ensure help is reaching the people who need it most and call for more action where people are falling through the gaps.

But looking beyond the short-term impact of the crisis, we’re also thinking about how to build an energy market that learns the lessons of the last year and helps deliver our vital net zero targets in a fair way for consumers.

Earlier this year, Citizens Advice hosted a roundtable of senior energy industry decision-makers including representatives from suppliers, government, the regulator, as well as the wider industry and academia. The focus of the discussion centred on what the objectives of the future retail energy market should be, and what action is needed to get there.

What do we want the energy retail market to do?

Our starting point was the objectives set out in the government’s energy retail market strategy, which is currently under review. These are fair prices and protection for consumers, energy companies being able to invest in innovative low-carbon technologies, and consumer choice and active market competition contributing towards a lowest-cost flexible energy system.

There was broad agreement that these are still the right objectives, but that there is significant tension between them, for example, the short-term upfront cost of energy efficiency, despite this being essential to the long-term objectives of decarbonising.

There was also widespread agreement on the need for a fourth goal; market stability. While there must always be room for competition and innovation, policy-makers and regulators must look again at measures to ensure consumers don’t pay such high costs of failure.

Following our Market Meltdown research, we will be considering which policy interventions can help support market stability and resilience as a key outcome.

What changes do policymakers need to make to get there?

Much discussion focused on how success is actually measured. Over the last decade the health of the energy market has often been seen in terms of annual switching levels. Participants felt this needed to transition towards a broader set of metrics, including the success of suppliers in helping customers decarbonise.

Building on this, we will advocate for clear success measures in forthcoming government and regulatory retail strategies. This should include tracking progress with helping people make low-carbon choices, while recognising that switching is likely to continue to be an important way to save money for those using traditional gas and electricity services.

A second major theme was how to finance home energy upgrades through the market.

Contributors felt that successful propositions that were attractive for consumers had not fully emerged, and that a future market should enable these while avoiding locking people into smart energy services. We’ll continue to focus on how products can work for people, and we’ve already called for a new FCA-style consumer duty to raise standards and fill protection gaps in the energy market.

Finally, there was recognition that the future market is likely to feature stronger price signals that reward customers who can be flexible with their usage and adopt low-carbon technologies.

However, the likelihood of elevated energy prices for years to come means that many people can’t afford higher prices, and we also risk seeing more affluent households race ahead – there’s already evidence of solar installers being overwhelmed by requests for orders.

We’ve done a lot of work to tackle the barriers that can prevent people from adopting new services that unlock value. But it’s vital we also protect those who can’t do so and are likely to be hardest hit by new price signals, to ensure people can meet their energy needs and have confidence that the transition to net zero is fair.

There’s been a variety of calls for new schemes, including social tariffs, but the debate has been generally high level so far. Citizens Advice is establishing an Energy Price Support Review to work through, in more detail, about who’ll need protection in future and how best to support them.

We’ll be working with our partners, the Social Market Foundation and Public First, with the aim of building greater consensus – amongst civil society, industry and the political parties but most importantly of all, the public – about who needs support and what form it should take.