Moves in the energy white paper to automatically switch customers to cheaper tariffs when their contracts end will discourage suppliers from developing new services to assist the transition to a low-carbon energy system, Michael Lewis has warned.
Speaking at the opening session of City and Financial’s energy white paper conference yesterday (2 February), the chief executive of Eon UK said the government’s proposals to competitively select cheaper tariffs and offer them to customers on an opt-in basis or automatically transfer them on an opt-out basis would be a “disincentive” for companies to develop innovative services.
“The energy transition needs to focus on the customer,” said Lewis.
“We’re not going to get there if the focus is on making it as easy as possible to switch to the lowest tariff because the lowest tariff might not be the best tariff because people might be engaged in pricing below cost and at a negative gross margin, which we have seen in the market and is not healthy and sustainable.
“We have to get to a market where all players are able to earn enough at a sustainable return to keep the market moving and keep people investing in new technologies and new ways of engaging customers.”
“The market is not working well at the moment. Virtually every retailer in the market is loss making, which is not healthy position for any industry to be in. We need to move to a market with strong sustainable businesses.”
And Lewis warned that the collapses of suppliers, like those of Green Network Energy and Simplicity Energy last week, would have a “snowball effect” on the viability of the rest of the cash-strapped industry.
“We saw a massive increase in competition because Ofgem created a market framework that encouraged competition and now we are in a situation where many of them cannot earn a living.
“Every time one of those companies fails, it imposes costs on others. If that continues, we start to see a snowball effect where loss-making companies are being forced to take on costs from other loss-making companies that have failed.”
Turning to specific proposals in the white paper, which he hailed overall as a good package, Lewis identified lack of support for domestic solar generation as the key missing element.
“While we need a massive expansion of on and offshore wind, when you look at scale of transition to 600-800TWh of electricity, we will need every bit of generation we can find.
“The bit that been negative is embedded solar,” he said, describing rooftop solar as a “huge opportunity” to engage consumers by enabling them to provide much of their electricity while avoiding putting pressure on the grid.
“There is more work to do on embedded generation, which hasn’t had as much focus as the offshore wind roll out.”
Last year, the government replaced its Feed-in Tariff subsidies with the less generous Smart Export Guarantee scheme.
At the same event, Energy UK chief executive Emma Pinchbeck said that the level of support for the net zero transition in next month’s budget would indicate where it ranks in the government’s list of priorities.
She said: “If we don’t have the money, it will suggest that priorities are elsewhere in government.
“The biggest challenge in getting this right across Whitehall and getting other departments bought in.”