7th Jul 2015 10:51
LONDON (Alliance News) - The UK Competition and Markets Authority on Tuesday published its provisional findings following a year-long investigation into the energy market, finding that a range of problems have hindered competition in the market and proposing a series of potential remedies to the issues it has identified.
The Big Six energy providers in the UK comprise British Gas, which is owned by Centrica PLC, SSE PLC, ScottishPower, E.On, EDF Energy and nPower. They are joined by just over 20 smaller independent suppliers in the country.
The UK's competition regulator found the average household in Britain currently spends about GBP1,200 on energy each year. For the poorest 10% of households, energy bills now account for about 10% of total expenditure. However, widespread consumer disengagement is impeding the proper functioning of the market, the CMA said.
The lack of customers switching has been a problem that the UK government and regulator Ofgem have been trying to tackle, with the launch of the Power To Switch campaign in February to try to encourage consumers to source a better deal through an independent website.
However, the CMA Tuesday said an "extensive survey" of 7,000 people in Great Britain found that over 34% of respondents had never considering switching provider. The CMA added that Ofgem needed to have a "clearer" and more "independent role" in the energy market.
The watchdog found that dual-fuel customers could save an average of GBP160 per year by switching to a cheaper deal. It also found that around 70% of energy customers are currently on the 'default' standard variable tariff, "despite the presence of generally cheaper fixed-rate deals".
"Lack of awareness of what deals are available, confusing and inaccurate bills and the real and perceived difficulties of changing suppliers all deter switching - and the higher price levels reflect that suppliers can charge higher prices to these disengaged customers," said the CMA.
Those on pre-payment meters, who "undoubtedly get the worst of things at present", also are set to benefit first from smart meters.
"Smart meters have the potential to transform customer understanding and engagement and their speedier introduction could have particular benefits for prepayment customers," said the CMA.
Ofgem has also been vocal about pre-payment customers after revealing there was a variation in suppliers' treatment of pre-payment meter customers back in June, as the regulator called on the industry to treat all customers fairly and to abolish charges for installing or removing meters.
Pre-payment meters are currently used as a "last resort" according to energy companies, but last month Ofgem said it would investigate the installation of pre-payment energy meters in UK households by energy firms over concerns the practice is being abused.
The CMA on Tuesday said regulatory interventions made to simplify prices are not having the desired impact of increasing engagement among customers and have limited discounting and reduced competition. The regulator, therefore, proposes that the retail energy market should be based on "clear principles that allow the benefits of competition to be gained and promote measures."
In addition, it will consider whether safeguards, such as a transitional price cap on the most expensive tariffs, will be needed to protect consumers until other measures drive a more competitive market.
SSE Chief Executive Alistair Phillips-Davies said in response Tuesday: "SSE has consistently maintained that whilst customers already benefit from healthy market competition, there is always room for improvement. We will now examine today's publications in detail, along with the analysis that underpins them."
Electricity prices in the UK have risen by around 75% in the last decade whilst gas prices have more than doubled due to more environmental and network investment costs.
"Future energy prices will be heavily influenced by decisions being made about investment in generation capacity and renewables," said the CMA.
The UK government has taken a mixed approach to renewable energy since the general election. It has favoured offshore wind farms and solar power and also has shown its support for oil-well fracking in the UK. However, onshore wind farms are being shunned, with incentives removed.
The government committed to its decision on onshore wind farms by scrapping the Renewables Obligation which is the primary of three subsidies for onshore wind farms, claiming the country has enough onshore wind in the pipeline.
On Saturday, the Telegraph reported the cost of subsiding new UK wind farms was "spiralling out of control" and said green energy schemes would cost around GBP9.0 billion in subsidies by 2020. Those subsidies would be paid by customers, averaging around GBP170 per household per year by 2020 if the promises made by the coalition government are to be achieved.
The Telegraph said the rise in subsidies was being caused by higher-than-expected numbers of rooftop solar panels being fitted onto houses, falling wholesale energy prices, and offshore wind farms proving more productive than anticipated.
The CMA on Tuesday said it was "concerned" about the impact of high-cost low-carbon electricity. Although it said it understands the UK needs to move toward cleaner energy, it said the transition will "have a significant impact on bills".
These provisional findings by the CMA will be followed by a final report from the authority before the end of 2015. The investigation began back in June 2014 when Ofgem referred the energy market to the CMA over concerns about features of the market which were preventing, restricting or distorting competition.
SSE shares were down 1.0% to 1,559.00 pence per share on Tuesday morning, whilst Centrica shares were down 0.9% to 265.00p.
By Sam Unsted; [email protected]; @SamUAtAlliance; and Joshua Warner; [email protected]; @JoshAlliance
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
CentricaSSE