The energy industry is in desperate need of radical reform
Leamington Spa, UK (PRWEB) October 12, 2011
First Utility, the UK’s largest independent domestic energy company, today launched a manifesto outlining key actions to create a more competitive UK energy sector. At the same time, the firm rejected outright Scottish and Southern Energy’s moves (to auction all its energy on the day-ahead wholesale market) as having any positive impact for new entrants into the energy market, or consumers.
Darren Braham, First Utility, said: “High profile calls for greater competition in the market, and more recently, promises from politicians to ‘break up’ the stranglehold of the Big Six energy firms that currently dominate, have so far resulted in very little for consumers worried about their bills.
“Unless the issues that are preventing a fully competitive UK energy market are addressed, the fact remains that consumers will never get the deal they deserve. Whilst we welcome the fact that politicians are taking the issue seriously, tough action must now quickly follow tough talk.”
As the largest of the independent domestic energy suppliers, and one of the newer entrants into the energy sector, First Utility is fully aware of the issues caused by a lack of competition in the energy sector. Outdated billing practices, old technology and inefficient customer service not to mention poor price competition, are just some of the issues affecting UK consumers.
The recent political party conference season has been notable for headline grabbing language which has called for greater competition in the UK energy retail market. There have been very public calls for change and more competition, but there has been less attention given to the reality of what must happen on the ground to alter the status quo.
First Utility’s actions for reform include calls for government and Ofgem to:
1. Take Action on ‘Predatory Pricing’
The ‘Big Six’ are taking advantage of disengaged customers and blocking competition, reducing consumer choice and creating in essence a vicious circle which prevents the growth of newer entrants.
This behaviour is anti-competitive, and we also suspect in breach of Ofgem licence conditions. This is an issue we have recently highlighted with Ofgem.
2. Reform the Wholesale Market
There is an acute lack of liquidity in the wholesale power and gas markets, driven by the fact that the ‘Big Six’ are vertically integrated and control over 80% of generation as well as over 99% of the retail domestic market. As a consequence there is insufficient energy traded on the wholesale markets to provide liquidity for growing supply businesses such as First Utility to directly access the wholesale products they require to grow their customer bases. New entrants are left with little alternative than to strike up a bilateral deal with a generator who is more likely than not to be a competitor.
One of Ofgem’s solutions is to require the ‘Big Six’ to auction 10% - 20% of their electricity generation output to let more companies enter the market. As far as we’re concerned this doesn’t go far enough and we believe this figure should be in excess of 50%. The announcement today by Scottish and Southern Energy that it will begin auctioning its generated energy to any supplier will have a negligible impact on encouraging competition because the energy is only available on a day-ahead basis, which constitutes less than 1% of First Utility’s wholesale energy requirement. The majority of the power it buys for customers is purchased up to two years in advance.
3. Raise the Threshold for Restrictive Environmental Obligations
Yet again, these thresholds are set to exclude smaller and newer players from the market who are fighting hard to win customers from six companies who have inherited their customer base. The problem is that all such existing schemes have been designed around the ‘Big Six’ energy suppliers and their ability to support these costs through their massive economies of scale and sticky customers. A higher threshold (we propose 1 million dual fuel customers) and a more phased introduction of such requirements would create a more level playing field.
4. Act on Smart Meters
Finally, First Utility feels there needs to be a greater impetus to the roll-out of smart meters in order to give consumers the ability to manage their own energy consumption and empower them to make changes and reduce spending when prices are high. First Utility urges DECC to agree technical specifications and full details of the roll-out as a matter of urgency to allow innovative smaller players such as First Utility to develop their unique place in the market.
Darren Braham, First Utility, commented: “The energy industry is in desperate need of radical reform. At the core of many of the issues the Government needs to address is the fact that the current market conditions do not in any way encourage or promote innovation and competition. The current dominance of the market by the Big Six must be addressed head-on in a more urgent fashion to enable more companies to enter and flourish in the sector. A better deal for consumers requires more innovation from a greater number of companies to shake up the market.”
About First Utility:
First Utility is the smarter independent utilities supplier, offering gas and electricity services to a range of consumer and business customers. It is the only energy provider to roll out smart meters to all its customers, throughout the UK. It is through the use of smart metering technology that First Utility can empower consumers to manage and reduce their own energy consumption and bills. First Utility is headquartered in Warwick. http://www.first-utility.com
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