Energy overhaul announced by DECC
Confused about today's proposals to simplify the energy market? We dissect DECC's full report to get to the truth.
Ed Davey’s plan to ensure cheaper energy has caused quite a stir, and led to as many questions as answers. Thankfully DECC has released detailed proposals for the most radical overhaul of the energy market to date.
DECC’s proposals come at a tumultuous time for the industry, which is under fire for rising energy costs, a complex and difficult to understand market and possible manipulation of wholesale gas prices.
The government is eager to make the energy industry work better for consumers, but what are these latest proposals and how will they affect your energy bills?
Will there only be four tariffs?
The key proposal contained in the report is that every supplier could be limited to just four tariffs each. DECC has proposed that the government should:
- Limit suppliers to four ‘core tariffs’ per fuel – including Economy 7 and Economy 10 customers. This will end the proliferation of tariffs that has taken place over the last few years. However, collective switching schemes will be able to negotiate bespoke prices
- Have only four ‘core tariffs’, including one standard variable rate tariff, one fixed price tariff so its easy to compare.
- Is four the right number of tariffs?
- Will suppliers still have room to innovate?
- Will these proposals do enough to stimulate competition in this market?
Will households be automatically switched to a cheaper tariff?
The other key issue put forward, first by the prime minister and then Ed Davey, and contained in DECC’s proposals is switching people to the cheapest tariff. But while DECC is aiming to make switching energy easier, they do not appear to advocate automatically putting people onto the cheapest tariff. Rather, they propose that the forthcoming Energy Bill has the power to:
- Require suppliers to provide customers with ‘personalised estimates’ of what they could save by switching to the cheapest tariff.
- Provide a comparison tool so customers can compare tariffs on a like-for-like basis
- Will they make customers who currently don’t switch engage in the market?
- Are the proposals likely to promote greater competition between suppliers?
- Will a tariff comparison encourage customers to ‘shop around’?
- What is the best metric to allow customers to compare tariffs?
Responding to Decc’s proposals, Ofgem’s Chief Executive Alistair Buchanan said: “Ofgem welcomes that Government shares our vision of a simpler, clearer, fairer energy market for consumers and we will work closely with the Department of Energy and Climate Change (DECC) to deliver the most radical change to the retail market for a decade.
“These proposals – based on Ofgem’s Retail Market Review (RMR) – will put an end to consumers being bamboozled by complex tariffs and deliver choice that consumers easily understand. We are also proposing much simpler information for consumers such as
making suppliers give consumers their cheapest tariff on their bill. Ofgem is also going to enforce fair treatment of consumers using licence standards backed by fines.”
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