Politicians don’t believe the energy market is competitive – why?

Former Conservative MP Laura Sandys explains the crucial difference between having competitors and being competitive

The energy sector is constantly moaning that policy makers and politicians don’t congratulate them that there are now 50 suppliers not just those dastardly big six. “With so many runners and riders in the market how can we consistently be accused of not having competition in the market” is a continuous refrain.

A competitive market and the number of competitors are actually distinct drivers not one in the same however highly desirable it is to have both. A truly competitive market needs more than numbers – it needs competitive behaviour, competing products and pricing, and real choice for consumers with competing outcomes. The subtlety of the difference between numbers and competiveness has been lost on the industry but not by the policy makers. 

This is not just the industry’s fault – the regulatory settlement from privatisation shaped a very risk averse structure reflecting the industry as it was when nationalised. 

The sector cannot continue blaming politicians for being in the eye of the storm and while they complain that a price cap will undermine competition this has been long in coming.

This was totally understandable as this was a risky move from centralised control to “for profit” companies, however it was designed with so much complexity that only a super vanilla product could emerge from the regulation of process. In addition political risk has added to system risk now the cost of energy has become a political football - a development from which no one will emerge a winner.

Add to this the metrics by which the industry competitiveness is judged is through - “switching”.  Switching from one vanilla product to another with the only choice beyond price is a differently coloured logo, leaves competition stuck around promotional pricing rather than value and varying service offers. Sadly the structure, the regulation and the politics around the sector puts the dampeners on any innovator or marketeer who comes up with a new consumer “offer”. 

However, the sector cannot continue blaming politicians for being in the eye of the storm and while they complain that a price cap will undermine competition this has been long in coming. There were many chances to steer public policy away from this intervention.  

From a politician’s stand point the sector feels as if it is doing the minimum possible to implement the CMA recommendations – and at the slowest pace possible.  In addition the politics have changed and the sector has not quite caught up with the new dynamics and political narrative.  The Conservative manifesto is very clear and No 10 has been explicit about what they mean by competition.  They are not religious about competition per se and do not see it as an end in itself.  They have rightly moved on from looking at the process and are strongly focused on the outcome.  Does this deliver best value for consumers?  Are they being given a fair deal? Is the sector doing all it can to shape a new cost efficient system? Or are they being complacent?

This is not to say that change is happening fast across the sector and that innovators are around every corner.  Just that the narrative from too many is “more of the same please” – when the record is somewhat broken it is worth getting a new song!

Courage is what is needed. The sector needs to break out of its waiting-to-be-told mentlaity and really embrace new marketing led business models.  Meanwhile, regulation needs to free the sector from managing the process and move to deliver truely outcome-led regulation.  

As always the “blame” for market dysfunctions lies somewhere in between the various players - industry, govenrment and the regulator. But the industry needs to own its own future by shaping an ambitious vision which can get it off the political hook. And it must not mistake number of competitors for consumer choice.  

Author: Laura Sandys, founder, Challenging Ideas (former Conservative MP),
Channel: Policy & Regulation , People

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