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Ripping off the band-aids

24 November 2023

Ripping off the band-aids  [ 1.3 mb]

The retail energy market isn’t working: unaffordable prices for millions of households, the majority of consumers served by a new ‘Big 6’, and innovation that isn’t reaching far enough. As we set out earlier this year in Future Fantastic? it’s vital suppliers now move beyond ‘standard’ energy tariffs to provide the smart, low carbon services of the future.

Current regulations require all suppliers to meet the needs of a broad range of consumers, ensuring universal access to energy, accessible customer service and extra support for people in vulnerable circumstances. These are important outcomes, but the way they are achieved can limit the ability of suppliers to specialise in certain products and services. 

A market with more specialisation could deliver a broader range of services and increase engagement by providing products that better meet consumer needs. This has the potential to enable models that support low carbon technologies, like electric vehicles, heat pumps and solar panels. 

This paper reviews a range of approaches that could enable more specialisation and assesses the benefits and risks to consumers. More comprehensive options that include changes to universal service may appear radical, but could also be more effective and sustainable. Previous tweaks to the system enabled many poor quality new entrants who failed in recent years.

Some consumers are increasingly excluded from the market, and reforms could increase this risk. We’ve identified changes that tackle this by enabling wider market participation, upgrading consumer protections, and supporting those who struggle to engage. 

There is currently no clear direction of travel for the retail market. The Government and Ofgem must confront the hard choices on specialisation and consumer protection that will enable the affordable, low carbon services we need in the transition to net zero.