The future is bright
Blog
Mary Starks
Publication date
Industry sector
Supply and Retail Market
I joined Ofgem last year at a pivotal time for the retail energy market.
Since then, we’ve implemented a price cap on default tariffs, which is one of the biggest changes we have seen for consumer protection in the energy market. I’ve also met stakeholders across England, Wales and Scotland, and heard views on everything from fuel poverty to open data. In turn, I’ve been asked, “Where do you see the retail market going?” Tough question!
I don’t know what the retail market will look like in the future. But I do know that it needs to work well for all consumers, including the disengaged and vulnerable, and that it needs to support decarbonisation, which will require more flexibility in the system. I also know that it won’t do either of those things without serious innovation – innovation that paves the way to sustainability goals, as emphasised by Energy minister Claire Perry at Ofgem’s recent Future of Energy conference. Several important enabling measures are already in train, but there is more to do.
A “managed revolution”
Getting there requires a complete rethink of how the energy system works, where it fits into the bigger picture of consumers’ lives, and the role of regulation in supporting the future system. An expert report released last year called for a “managed revolution” of the sector where regulation gets out of the way of innovation but doubles down where there are real risks to consumers.
In the future market, consumers should be able to produce and sell energy back to the grid, get the best deal through easier switching between providers, and control their energy spending by shifting use to when prices are cheaper. We’ve already started engaging on new, cutting-edge ideas via the “sandbox” in our Innovation Link, which helps innovators test out their propositions.
The feedback we get from innovators is that the current system of regulation, including industry codes, is standing in the way. Our role in the revolution must be an enabling one. We need to make sure the regulatory framework supports change and creates the conditions to foster the kind of innovation that consumers want and need, while ensuring consumers are protected appropriately.
Paving the way
An important step is examining the current arrangements, which are focused on suppliers providing energy to consumers. The “supplier-hub model” imposes a one-size-fits-all licensing regime which limits market entry for innovative propositions, in particular making it difficult to specialise or focus on a particular niche. That’s why we launched a call for evidence on supplier hub arrangements, and concluded last year that there is a strong case for investigating reforms.
As announced by the Secretary of State last year, the government is working with Ofgem and stands ready to legislate to enable these vital reforms where necessary. In the Summer, we will publish preliminary findings from the joint review.
Meanwhile, a series of reforms are already underway that will underpin the transformation of the market, from the roll-out of smart meters and half-hourly settlement of smart meter data, to the Targeted Charging Review that seeks to ensure network costs are fairly shared. Our joint “midata” project will enable consumers to share their data with trusted third-party firms that can find the energy solution that suits them best, while our switching programme seeks to make it easier for consumers to shift onto better solutions when they find them.
Our role in the future market
As we seek to foster revolutionary changes that benefit consumers, we are also thinking about how our role will need to evolve. The future market should be shaped by innovation responding to consumer needs, not by regulation. Regulation will still be needed, but regulation that is flexible enough to respond to innovation, rather than constraining it.
Ofgem will work with government to ensure appropriate backstop protections are in place to make sure no one – especially vulnerable consumers – gets left behind. However, our ambition is that by supporting innovative and inclusive propositions that empower many, those protections will be needed only by the few.
In the future market, consumer protection must be innovative and targeted to the needs of consumers. Protections must help consumers navigate and engage with the broader range of propositions available, as well as equip them to push back when necessary by ensuring lines of accountability are clear and rights are well established. New consumer solutions may cross sector boundaries, and so consumer protections may need to as well, which means regulators will need to collaborate in new ways.
Getting this right is far from straightforward. We’ll need to work more closely than ever with our stakeholders. On 6 March, we are holding a kick-off event and, in the coming months, we will be engaging intensively with stakeholders, gathering views on how best to support the kind of innovation that benefits future retail consumers, and on what consumer protections are needed. You can find out more and give us your thoughts by contacting us at futuresupply@ofgem.gov.uk.