Meeting the timetable for net zero means that UK households will generally use less gas and more electricity than they do today. Heat pumps and electric vehicles will keep carbon emissions low, whilst putting substantial additional strain on our electricity network. Alongside this, we will come to rely more on sources like wind power, which are less responsive to changes in demand. To manage these growing pressures, our future energy use needs to become more flexible, varying the times we use or store electricity to help the grid manage demand.

Driving this change will be a range of new ‘time of use’ tariffs that incentivise consumers to shift their energy use. In many ways, this is nothing new. Economy 7 tariffs are a long-established way for consumers to take advantage of cheaper energy prices overnight. These tariffs are covered by the same set of rules as other parts of the energy retail market, protecting consumers if they experience problems. But risks emerge from new, more complicated tariffs, along with the ‘smart’ appliances that accompany them. These ‘load control’ products and services are increasingly provided by companies other than licensed energy retailers. While expanding the market this way will enable households to harness the benefits of flexible energy use, we would like to see the government continue efforts to ensure that protections for consumers keep pace.

Balancing demands

We welcomed the previous government’s consultation on regulating companies providing ‘load control’ services and we support attempts to expand protections. Speed is of the essence if the UK is to meet its net zero goals, but the transition will only be a success if it brings consumers along with it. A comprehensive and adaptable set of protections are key to ensuring that no one will be left behind.

Our consultation response highlighted the existing licence conditions that apply to energy retailers — many of these should be extended to cover new forms of flexible energy provision. This is a fast-developing marketplace, so what might work for today’s electric car chargers might not be so good for the smart fridges or washing machines of the future. Grounding regulations in principles and desired outcomes, rather than the specifics of particular technologies, is important to ensure protections can adapt to change. Basing these, as far as possible, on existing licence conditions will increase certainty for suppliers and reduce the burden of compliance.

A crucial pillar of the existing protections framework is a statutory independent advice and advocacy provider. This helps consumers resolve problems with their energy supply and gives them a voice in a complicated market. We would like to see the expansion of this statutory role, as well as the appointment of an ombudsman to resolve disputes. This will be of particular importance in relation to energy flexibility provision, where consumers may be expected to play a more active role in working out which products are best for them in a complex and fast-changing landscape.

Yet whilst extending these existing protections forms a useful framework, there are some additional challenges posed by energy flexibility.

Communication & Data

Currently, the rules for energy retailers require energy tariffs to be clearly communicated. Prices should be transparent and consumers should be given sufficient information about what they are signing up to, what they are paying for, and whether they can get a better deal. Flexible tariffs bring extra complexity, with the potential for energy prices to vary significantly, and unpredictably, as they respond to the peaks and troughs of energy production and demand. Clear communication around how and when prices will change, and what that may mean for consumers’ total bills, becomes especially important.

The challenge is that how much consumers pay will increasingly depend on how and when they use energy, rather than just their total consumption. This gives people more control over their energy bills, but only if they are given the information they need. Consumers will need access to their consumption data to allow them to compare not just prices, but what those prices would mean for them. This is crucial to avoid companies building on known behavioural biases and offering consumers attractive looking deals that aren’t actually advantageous for them.

Control

Some level of automation is necessary if consumers aren’t going to be overwhelmed with tracking energy prices every minute of the day. But our research shows that it is important for trust and confidence that consumers are always ultimately in control. This means things like manual overrides, and the option to set parameters for how and when things operate. If this means sometimes paying higher costs to use energy at more expensive times of day, then that is a trade-off that some people may be willing to make. But it is important that these additional costs are proportionate and capped at the level of cost faced by the supplier.

As well as control over their devices, it’s also important that people have control over their tariffs. People’s lives change, so it’s important people don’t get locked in to tariffs that are no longer right for them. Developing a health condition could mean that a household now needs to use more energy at peak hours, and they should have options to move to a tariff that doesn’t penalise them for it. People in the private rented sector often face the upheaval of moving house and may struggle to benefit from flexible energy if the right protections aren’t in place. Being able to exit or switch without unfair penalisation can be important in breaking down psychological barriers to uptake, even if people don’t ultimately make use of them.

Inclusion

The goal of regulation should be to ensure that everyone shares in the benefits of a flexible grid. We have already set out the case that more effort is needed to make flexibility truly inclusive and the government now has the opportunity to set out outcome-focused, forward-looking and flexible regulations that make this a possibility. The wider energy sector has been making progress towards improving protections for vulnerable consumers, for example by placing greater duty on suppliers to think about a customer’s circumstances before disconnecting them. We would like to see these principles adapted and extended to the new regulatory framework for flexibility providers.

Flexibility has the potential to lower bills and give people the opportunity to take greater control over their energy costs. But many of these benefits will only be realised if the barriers that some people face in accessing energy flexibility are specifically addressed. As the new government picks up the challenge of regulating this sector, it is important that they do so in a way that ensures no one is left behind.