There have been more than a decade of efforts to revitalize and promote competition in the UK energy market, but the results have been disappointing. Despite several reforms, investigations and the introduction of a price cap, the market remains dominated by a few large players. At the end of 2013, the six largest energy retailers held around 95% of the electricity market, leaving only a small share for growing competitors and smaller providers. Despite attempts to encourage customers to switch to cheaper offerings from new entrants, this push ultimately resulted in the market shrinking to the big six.
There are currently 21 suppliers in the market and with Octopus’ recent acquisition of Shell’s domestic utilities business, the big six now control more than 90% of the electricity market. The lack of meaningful competition is evident, with limited fixed-price offerings for existing customers and a significant drop in exchange rates. In fact, customers today are more likely to gravitate towards larger providers rather than away from them.
Current market design and regulation focuses primarily on price competition and neglects innovation and equity. While new players like Octopus and Ovo have brought innovations to market, higher barriers to entry and tightly regulated margins pose challenges for the next generation of innovators.
Promoting competition and the emergence of new business models require new thinking. Shifting the market towards near real-time billing based on actual consumption and allowing domestic suppliers to share could allow new entrants to offer more customized packages. However, this would require a reassessment of the price cap to reflect asset-specific or time-based tariffs.
In addition to fighting competition and innovation, justice is also an urgent concern. Because wealthier people use energy when prices are lower while others struggle to pay for it, a fairer approach is needed.
Overall, the UK energy market has reached a point where a one-size-fits-all approach is no longer effective. To promote competition, innovation and fairness in the market, new strategies and new thinking are required.
