Briefings

Switch or Transform: The future of the retail energy market

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The Competition and Markets Authority (CMA) is currently investigating competition in the GB energy market and is about to publish provisional findings and possible remedies.

This is an important moment for energy consumers since the new government has a manifesto commitment to implement the final recommendations. Separately, there is the increasing expectation that the advent of new digital technologies and the reduction in costs of home generation and storage systems will lead to a revolution in the way that energy is consumed. Rather than being unrelated, these issues are, in fact, closely linked and the recommendations of the CMA must be framed in this broader context.

The key market failure that the CMA will need to address involves the high proportion of customers who are unwilling to go through the simple process of switching supplier – even though this could save a typical customer more than £100 each year. However, the cost reductions available to individual customers from selling demand flexibility services are likely to be rather lower than £100 each year and realising these benefits will demand upfront investment and/or behaviour change. This means that it will be far more difficult to encourage consumers to provide dynamic demand services even though the overall benefits in terms of system efficiency will be considerably greater. It is important that the CMA demonstrates how their proposed remedies encourage full participation in this more challenging situation.

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