EAS Policy Position Statement - Energy Market
Energy Action Scotland believes that it is fundamental to have a transparent energy market that consumers understand. This requires better information, simplification and the ability to easily compare and contrast different tariffs from different suppliers.
Energy Action Scotland welcomed the referring of the energy market to the Competition and Market’s Authority by Ofgem and the subsequent report of recommendations. As a result of these recommendations, the number of tariffs increased again, giving consumers more choice also leading to innovation in the market. Energy Action Scotland believes however that the key to tariff simplification lies not in the number of tariffs available but in the ability of consumers to compare them easily, quickly and successfully.
Energy Action Scotland has concerns about the make-up of the daily standing charge. Standing charges continue to increase year on year. Increasing standing charges means that any energy efficiency gains are not felt in terms of reduced bills. This part of the bill cannot be influenced by consumer behaviour and no matter how energy efficient the consumer tries to be, the standing charge remains the same. Energy Action Scotland suggests that further price rises be limited to price per unit to allow energy efficiency measures to have an effect financially and so help to reduce energy bills. There is also an important link here to the need for greater transparency. For some time now, the utilities have maintained that it is primarily the price of oil that has led to price increases. If that is the case, then surely it would be the unit cost alone and not the standing charge that would be increasing?
Greater transparency of the wholesale market is also needed, making clear who the energy companies are buying from, and how many times a unit of energy has been bought before the consumer buys it, and how many times one company has profited from that one unit. Energy companies generate electricity through one arm and sell it to themselves and others. That part of the market is not transparent and no-one but the energy companies themselves understand how this market works. Fairness needs to be at the heart of the retail market.
Much of the advice given to consumers worrying about high bills is concerned with switching energy providers, and there are many reasons why people choose not to switch, such as loyalty to their energy supplier, fear, time concerns, difficulty and Energy Action Scotland recommends that energy suppliers develop other solutions to high bills. Suppliers are already licenced to make it clear on consumer’s bills if they are on the cheapest available equivalent tariff from the same supplier. The introduction of the “safeguard tariff” has in effect removed Standard Variable Tariffs (SVTs) from the market. For the most part, consumers are either on a safeguard tariff or they have some kind of time limited deal. The latter is always by design, going to be a cheaper option. Suppliers should by licence need to establish if the customer is happy to remain on the safeguarded tariff or if they would prefer to be locked into the supplier for 1-2 years and attract a small discount. As it stands, suppliers just need to offer the cheaper tariff on the bill, i.e. that no response to the comparison on the bill is assume to be a tacit agreement to the safeguard tariff.
Energy Action Scotland welcomes the smart meter rollout, as smart meters are an effective solution to estimated bills, also potentially helping consumers to gain control over their energy. We are aware that a smart meter by itself does not make energy cheaper; it has the potential to impact on the accounting of energy use, so that the cost in the metering, billing and administration systems should in theory be cheaper. We believe that smart metering has the potential to provide real benefits for vulnerable and low-income householders, but only if these individuals are effectively engaged and supported throughout the smart meter journey. Energy Action Scotland is working with Smart Energy GB to ensure that everyone has the same opportunities to engage in the smart meter rollout, regardless of personal circumstance or where they live. We remain concerned about the interoperability of smart meters and whether technology will have advanced in time to meet the ambitious deadline of 2024.