Fairness — how to deliver it, and even define it — has dominated debates about the energy sector for the past 20 years. As an essential service, everyone agrees it’s important to make sure people can afford the energy they need for everyday life. How to achieve this outcome is a different matter, with various policies and approaches tried over time.
Switching has generally been a key factor determining the price people pay for their energy. The minority who switched regularly could access cheap deals, while the majority who didn’t paid a much higher price — known as a ‘loyalty penalty’.
Failure by the market to answer the question of fairness led the Government to make a significant intervention in 2019, introducing a price cap for energy. This is designed to ensure loyal customers pay prices which are not significantly higher than the cost to serve them. However, it’s also a temporary measure, with the legislation for the cap due to expire by 2023.
How can we help achieve fairness in future?
As government and regulators design policies for a future energy market, they must confront the difficult question of fairness. We think the market arrangements should help as many people as possible access new products and services, while at the same time protecting people buying traditional energy products from paying unfair prices.
There are 3 ways policymakers can ensure the retail market achieves this:
- Upgrade consumer protections to make new services easy to use. This means having a simple consumer journey for buying and using new energy services, including when things go wrong. It also means making sure people are protected no matter how they access their energy.
- Remove as many barriers to using new services as possible. This means having good financing options and extra financial help for people on lower incomes. It also means ensuring there are products that work for the rented sector, and that there is access for people who are digitally excluded. We’re busy with research in these areas at the moment and will have more detailed recommendations later in the year.
- Help people using basic energy tariffs pay fair prices. Some improvements are already underway. From 2022 the switching process will become easier and more reliable, and there are proposed improvements to the Warm Home Discount and Energy Companies Obligation energy efficiency scheme which support low income families. But after the price cap ends in 2023, there’s a policy gap in preventing rip off prices re-emerging.
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