Consumer Engagement with Energy Markets

Consumer engagement with the energy market is low and there are various complex reasons for this. This lack of engagement is linked to low levels of competition and a high proportion of customers who are unlikely or unwilling to switch energy supplier in the near future. With little incentive for suppliers to offer consumers a better deal, some customers are getting worse deals than others, and this in turn reduces consumer trust in the energy industry. If Ofgem’s proposals to increase liquidity in the market do not deliver, DECC should be prepared to intervene.

The complexity of the market with its many and varied tariffs has been identified as a key reason for the lack of consumer engagement. Ofgem hopes to increase both engagement and competition by simplifying tariffs and making it easier for consumers to switch. The Government has also pledged to improve the situation for consumers by requiring providers to give all their customers the cheapest tariff they offer. Whether or not these measures will improve the situation for consumers remains to be seen, but it is crucial that if they do not, the Government and Ofgem are prepared to take stronger action to ensure that consumers get a fair deal from energy providers. We suggest indicators to measure the success of proposed reforms and highlight the importance of ensuring that any changes do not have a negative effect on vulnerable consumers.

There is clear evidence that levels of consumer trust in energy suppliers is low, and this may in part derive from a lack of transparency. Some consumers blame energy company profits for rising prices. This is compounded by the lack of clear and understandable public information on energy company profits. Greater transparency is needed in respect of energy company profits and energy prices, including across the whole portfolio of vertically integrated companies.

What consumers pay for their energy will become increasingly important as the rising cost of investing in our energy infrastructure and of paying for DECC’s environmental and social policies is reflected in consumers’ bills over coming decades. Currently, there is some confusion about the impact of this investment on consumers’ bills, and media reporting of these issues has been criticised. Consumers don’t know who to trust for information about energy issues or where to go for advice, and this creates a further barrier to engagement.

There is a case for streamlining the various sources of information to provide an independent, reliable and trustworthy source of information about energy issues.

The message that consumers need to take action to offset future price rises by increasing energy efficiency or by getting a better deal from their energy supplier is not coming across strongly enough. In publishing this report and highlighting these issues, we hope to kick-start a national conversation about the cost to consumers of investing in the provision of secure, clean and affordable energy supplies for the future. The Government’s plans lack detail on how consumer access to information about energy efficiency will be increased. In particular, it is crucial that consumers are aware that their energy bills may continue to rise unless they increase energy efficiency or otherwise reduce their energy consumption.