Competition Impacts of Energy Tariff Options: There and Back Again

CAMBRIDGE, 22 March 2017

Author: Paul Monroe, Co-Founder, SMAP Energy

Cambridge University Science and Policy Exchange (Link)

Ensuring sufficient competition in the energy market is a key role of the regulator. One of the most popular measures for measuring competition has been in the analysis of customers switching between energy tariff plans. Unfortunately, switching rates are comparatively low and the market remains dominated (85%) by the six largest energy companies. Many regulatory interventions have been made, but one of the most significant was a cap on the total number of energy tariff plans on offer by suppliers.

Earlier in 2016, this decision was reversed and the cap was eliminated. The primary reasoning was that the cap now inhibited competition because, alongside other measures, it prevented the creation of innovative offerings, like reward plans paired with other services, discounted “smart home” packages, and more.

The broad question looming over this decision is whether the cap removal will promote innovation or simply represent at return to the previous state of affairs. Furthermore, the implications for vulnerable customers – who benefit greatly from regular switching but may be dissuaded from doing so in this scenario – require exploration. This paper will detail the potential effects of this policy intervention in depth.

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