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Why we need to start talking about the future of energy retail

Why we need to start talking about the future of energy retail

Energy UK say we need to stop focusing on an outdated view of the market | Credit: Energy UK

Emma Pinchbeck, Chief Executive

Emma Pinchbeck, Chief Executive | Energy UK

4 min read Partner content

If we want to make life easier for consumers and reach net zero, we must discuss what a sustainable energy retail sector looks like.

Today the energy regulator Ofgem announced a rise in the energy bill price cap, which is applied to the standard variable tariffs offered to customers. It’s a big increase and may mean that more energy customers will struggle to pay their bills this winter. 

The cap is regulated but it moves up and down, on a formula, to reflect increases or decreases to the cost of energy. There have been record breaking price rises and significant volatility in the international gas market, driving higher UK energy wholesale prices, and therefore higher costs for energy suppliers and their customers. 

It should be noted that the UK is particularly dependent on gas, mostly because of the amount of it we burn in boilers for heating. Many energy suppliers are investing in new technologies like heat pumps or wind turbines precisely because they can see the value of a future energy system in which both the economy and ordinary home owners can rely on abundant cheap electrons produced at home. 

Price rises are never welcome and our sector is conscious that these come at a time when many households are already facing financial challenges. Energy is a public service, and we have a weighty responsibility for powering everything from your kettles to your local hospital (and one day soon, your car). That’s why last week energy suppliers covering over 90% of domestic customers signed up to fresh commitments to highlight the help available this winter for customers who struggle to pay bills, and to make it as easy as possible for customers to access this. These build on the measures already put in place with Government, Ofgem and Citizens Advice at the start of the pandemic.

Hundreds of millions of pounds of assistance have been provided during this period to customers through methods like emergency credit to help keep prepayment customers supplied with heat, power and light as well as payment holidays and repayment plans.

In addition to these commitments, there has long been a range of targeted support provided by energy suppliers to customers. Around £1 billion a year is provided to assist customers on low incomes, through programmes like the Warm Home Discount (which includes an annual £140 rebate for eligible households and support for advice services) and the Energy Companies Obligation (ECO) which funds energy efficiency improvements for households.

Most recently, Energy UK launched the Vulnerability Commitment, under which suppliers serving nearly three quarters of the domestic market pledged to improve the support they provide to households who find themselves in vulnerable circumstances - whether that be from financial difficulties, mental or physical health issues or other challenges.

We need Government to put some serious thought into the future of energy retail.

The retail market is fiercely competitive and looks very different from ten years ago. New suppliers have taken market share from the incumbents; we no longer have a ‘Big Six’. This competition has delivered benefits to customers as companies have reinvented themselves, invested in innovation, and become more efficient - but it is an incredibly challenging environment in the UK. 

After the immediate challenges for industry and more importantly, for our customers, we need Government to put some serious thought into the future of energy retail.

Energy retailers will play a huge role in delivering Net Zero, developing new services and technologies for customers and supporting them through the switch to electric vehicles and low carbon heating systems while also upgrading homes to make them more energy efficient. 

The Government’s recent Retail Strategy was a disappointment in that regard, confusingly focussing on an outdated view of the market rather than the future. We certainly need to help our customers get through the next few months but we also have to start talking about how we create a sustainable retail sector in future if we are to reach Net Zero.

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