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utIlIty WEEK | 18th - 24th July 2014 | 27 Customers Blog Decc blinked first on Eco Decc seems to be saying that competition can deliver a lot, but not energy efficiency schemes through Eco, says Peter Broad. C ompetition in the energy market can achieve a lot, but it cannot achieve efficient delivery of energy efficiency schemes through the Energy Company Obli- gation (Eco). That appeared to be the mes- sage from the Department of Energy and Climate Change at the Energy and Climate Change select committee this month. The rationale behind a supplier obliga- tion like Eco is that market forces will ensure efficient delivery. Yet, at the committee, a Decc official confirmed it cut Eco because of pressure from those suppliers that had been uncompetitive in delivering their obligation. There was a big gap between the high- est and lowest cost suppliers, and it is now clear it was those with higher costs that lob- bied for the scheme to be revised. If the issue was high costs for certain suppliers, rather than high costs across the board, it begs the question: why did the government not let competitive pressures play out? Is that not the whole point of obligating the suppliers to deliver Eco? There are three possible explanations. They are not mutually exclusive and all are likely to have played a part. The first is that Eco distorts the market for energy suppliers' core business: buy- ing and selling gas and electricity. Under this system, an otherwise excellent supplier that happens to be terrible at delivering energy efficiency will be forced to raise its prices, eventually going out of business, and depriving consumers of the choice of that company. This is a plausible argument but not one Decc has been making. Aer all, while the review has reduced the size of Eco, the supplier obligation has not been funda- mentally challenged. The second relates to the broader issue of lack of competition in the retail market, which is linked to customer inertia in the face of a system that discourages switch- ing. The impending Competition and Mar- kets Authority (CMA) inquiry is the latest response to this. If competition in the supply market is flawed, then it is illogical to rely on this market dynamic to ensure that policies like Eco or, for that matter, the smart meter roll-out, are delivered cost effectively. For both these reasons it is crucial that the CMA inquiry covers Eco alongside the mainstream market issues. Finally, the change shows that suppliers have been able to exploit a lack of political commitment. It appears some companies find it easier – by leaning on Decc – to adapt the regulatory environment to accommodate their lack of competitiveness than they do to adapt their behaviour in response to compet- itive pressure. This creates political risk for all market participants, which will ultimately increase costs for consumers. When setting the policy, did Decc con- sider how it would respond to the pressure that would inevitably come from inefficient suppliers? The solution for Eco is relatively sim- ple: take responsibility for energy efficiency schemes away from suppliers. If Decc is going to lose its bottle in the face of pressure from suppliers, any efficiency benefits from such a model will evaporate. If distribution networks were given the obligation it could be made to work along- side incentives to reduce demand across their networks. By contrast, there is a widely acknowledged tension in asking suppliers to reduce demand for their own product. Tak- ing responsibility for the delivery away from suppliers would also facilitate the roll-out of a local delivery model, which research suggests is the cheapest way of delivering energy efficiency. More preferable still would be to move the cost of energy efficiency off energy bills, which is notoriously regressive, and on to general taxation. The broader issues of competition and political risk are more complex and will be more difficult to solve. But we should start by recognising the possibility of their existence. And, when designing policy, government policy-makers need to be clear about the lim- its of what competition can achieve. Peter Broad, policy manager, Consumer Futures Collective switching does more harm than good Collective switching schemes have been getting a lot of press coverage recently, partly on the back of government sup port. The Big Power Switch in Doncaster reckons to have saved 285 local residents a total of £80,500 with one saving a "massive £525" after taking advantage of the scheme. All excellent news, you might think, especially for those in fuel poverty where sav ing money on energy bills undoubtedly relieves some of the financial pressure they're under. However, saving £525 makes me wonder what the total bill was to start with, and whether there might have been other ways of reducing it that would last for a lot more than a single year. Collective switching needs to be seen as part of a bigger issue – how much energy you use at home and how well you use it. If you think about it, collective switching doesn't encourage either of these. In fact, it could be counter productive because it gives the impression that all you need to do is shop around, find a cheaper deal, make a oneoff switch to a different supplier and not bother at all about how you actually use energy, but think that's the job done. I would argue that, on the whole, collective switching can hinder energy efficiency, slow down the UK's progress to its carbon emissions targets and discourage householders from taking responsibility for their personal energy efficiency. Ian Byrne, deputy chief executive, National Energy Foundation Home truths