Switched Off – is switching really a measure of consumer engagement?
Richard Hoggett and Caroline Kuzemko, IGov Team, 12th Nov 2013.
This time last week Ofgem ran an event on re-engaging energy consumers – at the time of writing you can still watch this online. It was timely, given the current political and media debates over how competitive the energy market is, although it was also acknowledged that even with better competition, prices are likely to remain high, if not rise, because of a range of factors such as on-going investment needs, rising wholesale cost and suppliers own costs. However, the event was dominated by discussions on switching as the measure of consumer engagement, disappointing given that this narrative has not changed from Ofgem (or Government) since the market was opened to competition.,
Energy is a public good, or at least was until it was treated like any other commodity, a decision we are increasingly paying the cost for, in all senses. In this framing, individuals, companies and businesses, households and communities are simply seen as consumers within the market. At the same time, the concentration in suppliers, supported through weak policy and regulation has limited choice and lead to a lack of transparency in tariffs and profits. It has also created barriers to entry for alternative suppliers and business models, which could give consumers a greater range of choice. There is a bigger question, in terms of how competitive the market really is, not helped by Ofgem’s comment that they are still working out what a successful competitive energy market should look like (more than 15 years after opening up the retail market). The issue now is that consumers are increasingly disenfranchised, they are struggling to afford the cost of energy, are not engaged with the complexities of energy transition, and distrust is therefore growing.
The majority of the Ofgem event was about improved switching as the primary method of solving the current dearth of consumer engagement. Adam Scorer from the Consumer Forum signalled that improved switching was unlikely to result in very high levels of switching and Juliette Davenport from Good Energy was keen to engage on a more inter-active and profound level with consumers. Despite these voices, however, Ofgem seemed to think that the recent Retail Market Review (RMR) with an emphasis on making it simpler, clearer and fairer for consumers to switch is the solution. Unfortunately, not only did Ofgem not have a clear idea of what a successful RMR would look like, they also tended to treat all consumers as if they were the same despite Adam Scorer’s comments and recent research that suggests much more complex patterns of behaviour.
This focus on switching is too narrow and simplistic. We need a new approach to engagement, based on a broad debate (to include role of supply, generation, transmission and demand), information for consumers about how energy systems work and the importance of change – a two way conversation about energy itself not just prices. Given the need to also bring about a low carbon transition and the implications this may have we also need consent from the public, that moves beyond the technocratic, centralised and expert led approach that currently dominates, towards a more decentralised, conversational and negotiated approach to our own energy future. We need to recognise that whilst some consumers may remain passive there is growing appetite from some households and communities to become producers, switching from consumption to prosumption. We have close to half a million homes using solar PV already and, as Juliet Davenport highlighted, smaller scale renewables enable people to interact with the market in a different way, bringing them into contact with energy infrastructure and the market. In Germany the energy transition is happening largely without large energy providers, with citizens now owning half of renewables. Community-led approaches can also attract local investment; increasing participation, control and democracy; and help change attitudes and behaviour towards technologies and the market.
We also cannot ignore demand, at the Ofgem event there some brief discussion on smart meters, but the focus was very much on the supply side – mirroring most of the national political debate. Even now instead of putting more focus on increasing energy efficiency and reducing demand, the Government appears to be proposing the opposite, helping the energy companies at the expense of their customers and having an impact on the energy efficiency industry. There has never really been an incentive for suppliers to help customers reduce demand, they want to sell units and obligations on companies have been the only way to make this happen. Better leadership is needed from the Government and the regulator.
With the potential of energy policy more front of mind than ever before, there has probably never been a better opportunity to have a really open debate about the future of the energy system and our collective role within it on both the supply and demand sides. Although most debate has centred on pricing and switching it has at least brought both corporate behaviour and energy policy to the fore. The Government and regulator need to show consumers that it respects them, move beyond the status quo that maintains the incumbents’ position and start encouraging fairer and more innovative company-consumer relations. We need to change the rules and give consumers a meaningful way to participate and engage, way beyond switching suppliers. We are long overdue a new conversation.