Dealing with the disrupters: A fresh challenge for Ofgem’s regulatory framework

New market entrants are slowly clawing a foothold in an arena traditionally dominated by the big six. But these new ‘disruptive business models’ have the potential to do more than just challenge the traditional market players; they challenge the very rules the energy market plays by.

Ofgem has already recognised the growing need for regulatory change as its consultation with industry on the potential impact of these new innovative business models closed this week. This wave of innovation is a trend only expected to continue as more businesses spot a niche for themselves in addressing the low carbon transition or the lack of consumer engagement and trust that Ofgem believes is behind the movement.

These new players are able to take advantage of rapid technological innovation faster than the big six, and Ofgem does not plan to stifle such potentially beneficial change. Chief executive Dermot Nolan said in the consultation “I want us to get out of the way where regulation poses barriers, and to support innovation where the benefits are clear.”

Ofgem said the consultation is merely the start of longer, much needed discussion on the benefits and risks to consumers that these non-traditional business models (NTBM) could pose, and is quick to point out its “firm view” that this kind of innovation is important.

But with the Competition and Markets Authority Investigation drawing to a close and the preliminary results expected in June, is it a case of the regulator merely jumping before it is pushed?

Nolan said the purpose of the consultation is to “improve our understanding of what is on the horizon so that we can stay ahead of the curve as an agile and responsive regulator,” highlighting an awareness that current regulation may no longer be fit for purpose, but a willingness to adapt before the CMA potentially questions it’s future role.

How regulation will change is also unclear, Ofgem says itself that the very nature of NTBMs mean they are not easy to define or categorise. The banner of ‘NTBM’ encompasses a dizzying array of publicly-owned organisations, community schemes, niche not-for-profit suppliers, multi service organisations, peer-to-peer supply and prosumers, all with different aims and ways of operating that will be a challenge for anybody to manage within one regulatory framework.

But it’s not just the newer entrants who are no longer resembling the accepted model of supplier, even the old players are starting to evolve. With business in the energy market tightly controlled through Retail Market Reform, even the major players appear to be trying something new. It’s just they are looking outside the energy market to do it.

In April big six energy supplier SSE’s orangutan started advertising broadband. While new to its advertising campaign, the company says the move into telecoms is not a recent one. It has offered broadband and telecoms for almost ten years, but the recent advertising push is part of a larger stragetic move to become a one-stop provider of all home essential products.

SSE acknowledges it has upped its game recently and is “looking to make inroads, build up a market share, and show customers that we have a highly, highly competitive and reliable product to offer them” a spokesperson for SSE told Utility Week.

It has backed up this intention by launching a broadband deal, open to both existing gas and electricity customers and new ones alike, that went straight in as the top deal on moneysupermarket.com. SSE does not plan to stop there. With a full range of home services such as boiler, electricity and gas installation and maintenance, SSE is in the process of evolving into a business model very different from the simplistic energy supplier.

Even consumer comparison site Uswitch is set to morph into a one-stop shop for property needs after last month’s acquisition by property website Zoopla. It seems no part of the energy market’s form is set in stone.

Maybe the challenge for Ofgem is not producing a future regulatory framework that incorporates NTBMs amongst traditional models, but is instead producing one without any traditional business models at all.

Four non-traditional business models:

Utility Warehouse
Independent supplier Utility Warehouse has separated itself from fellow competitors by offering a ‘bundled’ service. Customers can opt to receive any of their broadband, phone and energy supplies from the company, but customers are rewarded for receiving more services. By choosing the ‘Gold Energy’ package to receive of all three, customers are able to ‘unlock’ themselves ‘exclusively’ lower energy prices.

Woodland Trust Energy
Woodland Trust Energy consists of a partnership between one of the larger independent suppliers, Ovo Energy, and the UK’s leading woodland conservation charity the Woodland Trust. By opting to receive their electricity supply through this company, customers are also able to support one of the UK’s major charities. For every new customer that switches to Woodland Trust Energy, Ovo makes a donation to the Woodland Trust so that it can continue its conservation work.

Piclo
Piclo is an ongoing 16 month trial of an innovative trading service with Good Energy. Backed by The Department of Energy and Climate Change, this peer-to-peer trading platform allows renewable generators to sell their electricity directly to local commercial consumers. The service is being overseen by independent supplier Good Energy to ensure all regulatory requirements are met and to provide billing. The trial aims to prove the feasibility of a peer-to-peer trading engine and partnership model of this kind. It also intends to prove that the service is able to deliver value to renewable generators and savings to consumers.

Ebico
A not-for-profit energy company, Ebico offers just one tariff for gas and one for electricity to all its customers regardless of their payment method, with no tie-ins or cancellation fees. As a registered social enterprise Ebico is free to pursue its social and environmental goals with revenue just required to cover costs. It holds over 30 contracts with housing associations as Ebico’s main focus is reducing fuel poverty. To that end all surplus profits go to The Ebico Trust for Sustainable Development to improve energy efficiency in poor households.