In an exceptionally busy period of news in the pre-Christmas period, the release of the UK’s Energy White Paper may not have got the attention it deserved if we had been living in more normal times.
For those that missed it, it sets out a comprehensive plan for the UK to transform its energy market in order to meet the ambitious climate goals set for 2050. Amongst the headline grabbing plans, was a proposal read by many to ‘crackdown on the loyalty penalty’ in the sector, by creating a competitive process once consumers finished their initial 12 month energy contract in order to avoid consumers rolling off onto expensive variable pricing.
While the details of the plan are still yet to be fully revealed, at this stage it certainly reads as another significant intervention from the government in the energy market that is based around price. This follows a long line of regulation on the consumer side in order to stimulate engagement, often having unintended consequences whilst not achieving its primary objective. This failure is highlighted by the lack of impact the energy price cap is having. What was initially a stop gap measure has been extended over a number of years and this new plan looks to replace it with what will ultimately be a very similar approach, that further removes the onus from consumers.
Ideally, we would like to see the government doing more to hasten the open data revolution in energy, and allow the market to respond with innovations to drive consumer engagement and improve their financial outcomes. There is already good work being done in this space by Icebreaker One, who won a recent Innovate UK competition and Ofgem has previously run trials testing consumer perceptions around sharing their personal data to receive improved services.
Much like we have seen with Open Banking and more broadly Open Finance, increased access to consumer data has delivered numerous innovations and new business models that favour consumers at the expense of legacy market participants with entrenched positions. The different types of innovation go far beyond the original use cases conceptualised and have grown to touch all aspects of finance, from lending and investing to charitable giving and digital identity verification.
Ultimately, the innovations are hard to predict in advance but by making energy suppliers and other market participants open up consumer data, catalysing innovation and the creation of new entrants, it will develop a fertile ground for innovation and collaboration with technology platforms outside of the energy market.
We believe majoring on price and the removal of consumers from the supplier/tariff selection process isn’t going to be effective and deliver a solution that benefits the consumer in the long term. We need to increase engagement and empower consumers. This will enable them to make more informed decisions in their best interests, which typically go beyond the lowest price.
In the context of the race to net-zero by 2050, this market is set to become an increasingly complicated and crucial place with energy and emissions playing a more central place in consumers’ lives with smart homes, electric vehicles, home batteries, solar panels and heat pumps becoming the new norm. The need to balance a fully renewable-based grid is leading to innovations like 30-minute variable tariffs and we therefore require a more engaged and informed set of consumers to take up these new technologies and help transform energy consumption behaviour.