Ramsay Dunning, general manager of Co-operative Energy discusses why having six companies dominating the UK energy market is bad news for consumers and the environment
The Secretary of State for Energy and Climate Change last week told Parliament in his Annual Energy Statement how welcome it was that independent suppliers are now springing up in the UK to take on the Big Six Energy companies. However, the Big Six continue to dominate UK energy markets with 98% of all supply and 70% of generation. Therein lies the problem, dominance of both sides of the generation and supply equation.
Independent suppliers are making inroads – for example, at Co-operative Energy we now have more than one hundred and fifty thousand customers since we established in May 2011. But, consumers are so utterly mistrustful of the industry that switching rates have fallen to woefully low levels. This summer’s Ofgem Tracking Survey found that the proportions of consumers who switched supplier in the past year had fallen for the fourth year in succession for gas (to 11%) and for the fifth year for electricity consumers (to 12%).
There is a barrier to competition currently which is that if you look at the industry from the outside it looks like a cartel. I don’t believe it is, but that’s not the point; the point is that all the time it looks like a cartel outside investors, potential competitors and the public will treat it as if it is. Therefore the Big Six position is protected from competition and the public continue to be frustrated. You hear that the Big Six are saying they will build the new power stations required, and as they control the supply market this makes a potential investor in generation think: ‘Who would I sell the power to? It’s the Big Six who are going to build their own, it’s too risky, therefore I won’t do it’. Likewise, while we now have more competition in supply, the big hindering thought is ‘how safe is my business if I have to buy power from my competitors the Big Six’.
I believe that an early and significant action from the Government would be for it to compel that all power generation is traded through a single wholesale market. If, as the Big Six claim, they currently ‘net off’ very little of their supply then they should have no reason to oppose such a measure. Such a development would not only help ensure markets are working optimally and drive down prices, it would ensure openness and transparency. We have confidence in share prices because of a single stock market and a single index, the FTSE. So why not a single power market? Not just ‘day ahead’, but trading long term contracts as well. There would be an Energy Supply Index (ENSI), and just as we have the FTSE 100 and FTSE 500, there would be other indices such as an ENSI 3yr.
There is a second hot topic we need to think about rationally and calmly: the so called ‘Green Taxes’. All charges connected to decarbonising the UK’s gas and electricity supply should remain within the Energy industry. It is right that measures designed to punish the old polluting technologies and reward new clean technologies are maintained in order to help us make the necessary transition from dirty to clean power sources.
There are, quite rightly, a mixture of measures designed to keep people safe, dry and warm in their homes - from planning regulations, to help with paying for heating with schemes such as the winter fuel allowance, cold weather supplement and warm home scheme. Additionally we have a scheme designed to bring inefficient housing up to an affordably warm standard, the Energy Company Commitment (ECO). These are a mixture of government schemes and those delivered by the energy companies. I would argue that these should be brought together under the government umbrella, and reviewed as a whole to ensure they are targeted at those most in need of help. Thirdly, energy companies should take pride in paying their full share of taxes in the UK. Energy companies should pay full taxes in the UK from profits earned in the UK and refrain from the use of legal loopholes in tax reduction.
UK energy policy is at a crossroads. We either continue to stick with a few large corporates and hope that they treat us fairly, or we engage in wholesale market reform and diversification. Small, independent generators and suppliers are more than up to the challenge – but we need Government to be truly committed to allowing us to compete on fair terms.