Today, in the last instalment, Alistair answers a question on the UK energy market from the Energy Minister, Michael Fallon.
Michael Fallon, Energy Minister
HOW COMPETITIVE IS THE UK ENERGY MARKET?
Alistair:
For me the starting point here is what the features are of a competitive market? I would say it is clear evidence of competing companies, fair and low pricing, small but existent profit margins, innovation and, most importantly, engaged consumers.
There are some common misconceptions about the UK energy market - although the industry does not always help itself by over complicating things – which can lead to confusion. I could talk all day long around the battles to keep
costs down but what’s helpful here is to look at independent evidence and benchmarks.
I actually thought the recent report your Department commissioned was pretty interesting. In particular how it showed that the UK energy market performs well when analysed alongside similar countries in terms of energy prices, profit margins, and market competition.
The most interesting bit for me was that the UK has the highest market penetration of retailers with a significant market share, showing that retail markets are less concentrated than in the other Member States. We often hear about the ‘Big 6’ in the UK, well, in Spain they have the ‘Big 4’, in Germany it’s the ‘Big 3’, in Italy the ‘Big two’, and in France they have the ‘Big 1’.
There are some great examples of unique innovation in the sector too. SSE has the USP of its Sales and Service Guarantees, so that customers know we have put our money where our mouth is on service levels and sales. If service standards fall short, we pay customers. If a sale falls short of standards, we put it right. These guarantees matter and this is an area we lead, and that is competition in action.
However, let’s not pretend things are perfect. The report showed that the UK performed comparatively poorly in terms of consumer experience, with relatively high levels of complaints and low levels of satisfaction and trust. In this field the industry still has much work to do, and I am committed to ensuring that SSE continues to lead the industry with its level of customer service.
It’s not just retail though. Turning to wholesale competition, SSE routinely trades 100% of our energy generation on the “day ahead” market, but others should follow suit. This would enable all participants to better trade in that market and would set an even better reference price for longer term trades. We also offer favourable credit terms to new entrants, others should also follow suit here.
However, competition is not an end in itself, what really matters in these markets is the ability for companies to participate fairly and, even more importantly, the consumer experience. In retail I want to move away from talking about switching as that’s a measure of dissatisfaction and move on to other benchmarks, like whether consumers understand how to switch and things that actually matter, like whether they are using less energy and making better energy choices. And, obviously, pricing levels compared to other markets. That way we are measuring improvement not dissatisfaction and ensuring that affordability is benchmarked.