Utility Week

16 | JULY 2022 | UTILITY WEEK Energy continued from previous page HEADLINE HEADLINE HEADLINE A Utility Week report in association with PA Consulting CREATING SUSTAINABLE BUSINESSES AND PRICES Download the report Download the report Creating Sustainable Business and Prices free at: https://utilityweek.co.uk/energy- reset-creating-sustainable-businesses-and-prices/ the opportunity to switch but with equal incentives to develop a long-term relationship with their supplier. For Monica Collings, chief executive of So Energy, this comes down to overcoming the trust de• cit with custom- ers. She says: "At the moment customers simply don't trust energy retailers – all they see is their bill going up and our name on the envelope. "They've seen many suppliers fall out of the market over the past year, the subsequent negative headlines le‚ right and centre and longer than usual waiting times because of the sheer volume of enquiries. "There's not much positivity about at the moment and that's a real problem because ultimately, we're going to be the ones who are going into their homes and installing new kit to help them decarbonise and they're going to be looking to us to manage that kit remotely on their behalf. This needs an element of trust to work, so we have to talk about how we will rebuild this between customers and suppliers." For Ombudsman Services chief executive Matthew Vickers, there are questions over whether retailers are really set up to be directly dispensing state aid. He asks: "If we are starting to get into a space where we are expect- ing private businesses to do something that feels much more at times like social work, how are we going to help them with the data and the capability that they need to do that?" Vickers says that from the conversations he has had with various consumer bodies, meaningful engage- ment on how to execute policy "was missing". He continues: "I think the risk of that is it can lead to a vicious circle, where it leaves suppliers exposed to try- ing to do something that they haven't necessarily had the time to plan for, it's not where their capabilities or their business model was designed for and they also can end up copping a lot of the ‰ ak for something that arguably is a social welfare issue, it's a wider aŠ ordability issue." He says the risk of this is that it will make the energy transition more di‹ cult as it will erode trust. So Energy has long campaigned that one source of distrust has stemmed from the disparity between tariŠ s being oŠ ered by suppliers on price comparison websites and those available to existing customers. This so-called loyalty penalty emerged out of the Competition & Mar- kets Authority's (CMA's) Energy Market Investigation in 2016 which recommended removal of the prohibition against exclusive tariŠ s. To counter the potential for dis- engaged customers to be excluded from the best deals, the CMA recommended that Ofgem introduce a database of these inactive customers, with rival suppliers invited to prompt them to re-engage. However, these plans were dropped when the decision was taken to introduce the price cap. Alongside the introduction of a market stabilisation fund in February, Ofgem banned suppliers from oŠ ering exclusive tariŠ s. The restriction is temporary but there has been speculation that the regulator will eventually make it permanent. However, when asked as part of this report, Ofgem retail director Neil Lawrence said: "We have introduced two short-term and temporary measures to stabilise the market which we believe are in consum- ers' interests. The intention is they will fall away this Key recommendations from the report include: • A more targeted approach to helping vulnerable customers with their energy bills is needed beyond this winter. There was strong support for a social tari• , perhaps tied initially to the Warm Home Discount but ultimately as a replacement for the price cap. • Other suggestions for reforming the price cap include moving it from an absolute to a relative cap, which moves with wholesale pricing within parameters to be de• ned. Many interviewees were in favour of its ulti- mate removal but if it is to remain, as the government has suggested, then it must be reformed to reduce the risks to retailers including those associated with hedg- ing, which has caused companies to fail. • Reform of the retail market needs to ensure that busi- nesses coming into the market are risking their own money and that no one is given a "free bet". • As part of its Review of Electricity Market Arrangements, the government must urgently tackle wholesale market arrangements that are currently not reflective of the rapidly falling costs of renewable generation. There is also a need to develop frameworks for locational pric- ing, although being mindful of the impact on volatility and the risk of a postcode lottery. • A properly funded and executed national energy e… ciency scheme is the clearest and fastest way to cut energy use and bills for millions. This could be deliv- ered through an existing scheme such as the Energy Company Obligation scheme but there is an urgent need to build the skills and the framework necessary to deliver at scale. • The de• nition of a functioning competitive retail market needs to be broadened, away from switching rates and price, and towards a measures of success that incor- porate other factors including innovation, customer service, and supporting net zero. • The government's Energy Security Strategy is heavily focused on long-term steps but more attention is needed on the period 2025 to 2035 when the UK faces a potential supply crunch as aging nuclear and gas plants must be retired. Short-term measures to miti- gate this supply crunch could include a more relaxed planning regime for onshore wind as well as further support for energy e… ciency and flexibility. "We need to get rid of a market where you can come into it on a completely free bet, because that's what has driven some of the most illogical behaviour. It's just run faster, run faster, fl ip it, or sell out and cheerio. There has to be a stake in the game." KEITH ANDERSON, CHIEF EXECUTIVE, SCOTTISH POWER, ON CONDITIONS FOR MARKET ENTRY QUOTED FROM THE REPORT

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