News on Energy Boulevard

Energy News – “Wheels within Wheels”

So the big news on Energy Boulevard would appear to consist of, at first glance, some relatively unconnected pronouncements and initiatives.

Let’s take Alistair Buchanan’s broadside regarding the looming generation gap as a starter for ten. I hate to disappoint anyone who thought that his announcements regarding the closure of coal and oil fired plants was new news; but this gap was being modelled back in 2007 at least if not earlier. Stating this as new news is a bit like announcing that the fact that the UK has a budget deficit is in some way telling us something we didn’t know before. So why did he do it given that everyone in the know is, well, in the know! My bet; worth as it is a pie and a pint down the local, is that government needed a not so subtle reminder that it is no good wishing this gap away.

We need a plan to solve and close it and sitting on planning permission for new nuclear, stalling on fracking, being very non-committal on carbon capture and storage and generally fiddling while Britain’s lights go out is not very helpful. Now of course the lights aren’t likely to go out; although they are much more likely to do so now than they were but the risks are still low. More importantly perhaps is if we hit the end of the decade and we are still faffing about in a bit of a tizz then that faint glow of light we can see in the distance will suddenly reveal itself to be the emergency lighting on an otherwise electricity free freight train hurtling down the tunnel towards us. In short, this is a public “wake up and smell the coffee” message from the head of the regulator delivered in the only way that seems to get a politician’s attention these days; via the front pages of the newspapers.

Which fact skips us nicely onto what else it is that our energy politicians are up to these days given that they aren’t actually solving any problems. One of the things that it turns out Ed Davey likes to do with my taxpayers money is strongly back Martin Lewis’ Energy Club initiative. This club involves, in summary, a savings signposting system sent to all signatories of the Energy Club and bespoked to their own individual circumstances. Thus those people that sign up will never again have to actively engage in trawling the market; they will simply get an e-mail suggesting how much they can save now based upon a £savings  target they signed up to when they joined the club. Whilst the initiative is laudable as an idea; who will it actually help? The answer to this one is the people who are e-mailed about it, which in turn are those households actively engaged with online cost savings initiatives. In short this helps the existing online switchers in the UK energy market, which currently number some 1-2million households.

So what’s not to like? Well for starters the Minister for Energy should not be throwing his weight behind one particular private sector company, which this is, and therefore providing that company with free PR at the expense of other companies in the sector.

Secondly the model is a recipe for churn that is likely to enhance price harmonisation at higher levels than at present as suppliers’ price in the fact that customers will be actively encouraged to leave them perhaps only weeks after switching to them. As suppliers cannot provide different prices to the energy club as to the rest of the market this is likely to lead to a higher priced norm. But lastly, and most pertinently, it does absolutely nothing to address that part of the market which does not switch – the same part of the market that could most benefit from switching – because sure as eggs are eggs this elderly fuel poor C/D income market isn’t on Martin Lewis’ mailing and subscription list!

And when we examine these highly reluctant switchers we discover that they are, for the most part, supplied by their old incumbent electricity provider and/or their old incumbent gas provider. So in electricity that means that incumbency rests on the shoulders of 5 electricity (now electricity and gas) providers in the shape of EDF, SSE, Eon, npower and Scottish Power. And in gas? Well that particular incumbency perches on the shoulders of British Gas alone. Which segues conveniently into the furore over British Gas’s 11% rise in profits over the last year; most of which would have been made on the back of the aforementioned incumbency and associated stickiness of non-switching customers. Yes, the very ones which appear to have been forgotten in all the political glad-handing and back slapping. And they have been forgotten because engagement with this part of the market requires innovation and hard work and as a result has been parked in the “too difficult” pile. So instead we have energy clubs for the already savvy switchers because it makes for a good photo op.

So what’s the connection between all of these stories? Principally it is a story of spin. OFGEM spins a story to scare the government into actually doing something concrete. They do this because government, in the face of a flailing Green Deal (learn more about the Green Deal), spends more time pursuing media friendly initiatives than getting down to some serious and impactful policy decisions. And all the while suppliers defend through PR and statistical analysis the profits they are making, some of which if not the majority of which come about as a result of the fact that no-one wishes to grasp the nettle of consumer engagement. And so the wheels continue to turn but the mechanism remains broken.

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