Where is Retail market Reform going?

Retail energy supply is getting more interesting by the day. The Energy and Climate Change Committee put its considerable weight behind support for the demand side - whether as short-term response or long-term demand reduction - and raised the possibility of a feed-in tariff for these contributions. Good Energy has raised the stakes too, saying it plans to offer time-of-use tariffs, adding that option alongside its existing payments for micro and distributed and generators. Energy network companies, as well as suppliers, are recruiting customers to trials that will include more time-of-use tariffs, as well as others that incorporate electric car supplies and, for bigger customers, interruptible tariffs.

Forward-thinking energy suppliers might be able to do more. Some US utilities, for example, send text messages to ask customers to take action if the company is expecting high demand the next day. Without smart meters, that’s not traceable. But as water companies have found during periods of shortage, asking people to pull together voluntarily is often the most effective way – and an “honour tariff” would suggest a level of trust from an energy company that might be repaid in turn by trust from those same customers.

Collective switching also offers some interesting possibilities – and could be harnessed to manage demand. A specialist night-worker or shift-worker tariff could offer a beneficial rate to such groups, provided that the group was large enough to switch some of the supplier’s buying out of peak times.

There are a lot more options in the air – admittedly, some more practical than others. Two things are needed to get them moving.

First, Decc needs some help from the softer sciences. What might make people receptive to new ideas for interacting with their energy companies? How do such ideas translate into action in the real, messy world where people don’t always act rationally, and fit themselves neatly into an economist’s cost abatement curve? Traditional energy company thinking won’t answer these questions, nor will it start to generate customer “pull” on new ideas.

Second, we need to know what is happening with Retail Market Reform (RMR). Ofgem has driven this forward, although many have argued that its drive to reduce complexity is in direct opposition to the kind of specialist tariffs that could mean we switch at last from energy supply to energy services. It looks like we won’t know more about Ofgem’s direction on RMR until the autumn. Without direction on that, we won’t be able to move forward on much else.

Janet Wood

This article first appeared in Utility Week’s print edition of 3 August 2012.

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