Switching to Succeed – Will Change of Supplier Reforms Fix our Energy Market?

Daniel Walker-Nolan says recent steps suggested by Treasury to promote switching in the energy market need to think harder about the needs of different demographics and how standardisation of compensation can help confidence in switching.

The Treasury released a paper recently outlining a suite of measures designed to improve competitiveness in several consumer markets, including energy, by removing regulation and mitigating current barriers to action. With CMA, DECC, BIS, Energy UK and Ofgem already engaged in work to increase energy market participation, now is an opportune moment to step back and assess both what is being delivered and what needs to be delivered to ensure their collective goal is achieved.

What is Happening?

Work to improve energy switching can be grouped into three broad categories; process tinkering to make the consumer journey easier, introducing assurances to give consumers confidence in market arrangements, and ramping up innovation to better fit market offerings with consumer needs:

Process

Ofgem’s project to deliver next day switching from 2019 is now underway (although the Government is still pushing for a 2018 start). Given their latest headline statistic (from two years ago) showed that 80% of gas and 20% of electricity switches were completed late, it is not a big surprise that this issue is being taken on. The regulator hopes next day switching will create sharper incentives on suppliers to compete on price and customer service.

Assurance

Energy UK’s Switching Guarantee is due to be launched next year and aims to give consumers greater certainty about suppliers’ processes and procedures. The guarantee will contain several short statements as to what switching entails and what the supplier will do at key points in the journey.

Innovation

Provisional remedies from the CMA Energy Market Investigation included proposals to scrap the four tariff cap, and create an not-for-profit price comparison/switching service. Their hope is that if the market can be opened up to greater innovation and choice, suppliers will adapt their business models to better suit consumer needs and offer more bespoke, tailored deals. 

What is Missing?

Switching and consideration of switching are less prevalent among poorer consumers than richer consumers, so thought is required about how to structure next day switching so it is open for everyone to take part in – including those with energy debt and on traditional prepayment meters – and how it can be made to appeal to vulnerable consumers. Only then will it reach parts of the market where inactivity causes the greatest detriment.      

Confidence in providers is key to switching. Our polling shows that delays to the process are the number one reason for dissatisfaction among energy switchers and bad past experiences which have left consumers out of pocket can create a mental block, stifling future action. In order to redress this balance, we believe an industry standard on compensation for delayed and botched switches should be introduced.

Innovating when offering deals is important but a major reason consumers cite for not switching is complexity, unleashing the market without first tackling this issue could be counterproductive. The latest insights from behavioural science should be utilised to make presentation of energy deals more attuned to people’s actual behaviour and processing of information, rather than our idealised view of it.

Despite the hive of activity described here, Citizens Advice believes government, industry and regulators need to give greater consideration to the complicated mix of perceived and real barriers preventing consumers from switching if they are to succeed in securing greater, more consistent market activity.