If significantly more households switched, energy firms would have a greater incentive to break ranks and compete. The main barriers to switching are: complicated billing, making comparison difficult; the time and trouble of switching; the perception that the cheaper energy company will soon increase prices to at least the level of the existing provider, making switching pointless; and inertia among consumers, despite significant anger at price rises.
Ofgem has introduced new rules to make energy pricing simpler, clearer and fairer. In addition, the government has announced plans to reduce the time it takes to switch supplier to 24 hours. But these measures only address two of the barriers.
The other two may be addressed by making energy pricing more like car insurance. The fixed-term nature of car insurance provides a check point at which consumers are far more likely to consider their options and act to save money. Consumers with annual contracts switch far more frequently than those on unlimited contracts. Consumer searching and switching in the energy market could be improved by introducing: annual energy contracts with a fixed, transparent tariff; an annual statement clearly detailing the tariff charged, the household’s total consumption, and the total spent on energy over that period; and a renewal quote offering a fixed tariff for the next 12 months, calculating the total household expenditure based on the previous year’s consumption.
Dr Andreas Stephan, professor of competition law, University of East Anglia