Will switching change make a big difference?

With the news that the Big Six energy suppliers have not passed on wholesale price falls to domestic energy customers there has been much interest in the news that Ofgem is to slash the amount of time it takes to switch gas and electricity supplier.

Ofgem says it has agreed with the industry that switching times will fall to three days plus a 14-day cooling off period from the end of the year. And next day switching is still on the cards. It could be in place by 2018.

But will this address the awkward fact that two-thirds of energy customers have never switched supplier? Competition has been going for more than a decade now. Questions should be asked.

So is competition good for everyone? The short answer is no. Sure if you have the time to evaluate all of the many offers, are not put off by the mis-selling scandals and have both the luxury of both ample time and money it probably is for you.

But it is not if you haven’t. You would rely on a government body to ensure that you are not paying over the odds. But is Ofgem really up to the job these days? It seems to be a bit slow and easily outplayed. It has only just called on the Big Six energy suppliers to explain to their customers what impact falling wholesale costs will have on their energy prices. The costs of wholesale power and gas make up just under half the total household bill. However suppliers are yet to reduce their prices for existing customers to reflect the wholesale cost changes. Ofgem’s CEO has called on customers to ‘vote with their feet’ and so switching energy supplier is set to become much quicker, with energy companies confirming they are committed to slashing switching times by 50 % by the end of the year. This will reduce the time it takes to switch energy supplier from five weeks to around two and a half weeks.

And it is set to get much quicker, some say within 24 hours, once smart-meters are rolled out.

But is the aim of faster switching a panacea for the state of the moribund energy market? Smart metering will add more services for switching customers and opportunities for companies but will it actually make bills cheaper for everyone? Probably not. There will be a cost involved. And guess who will pay for it? Non-switchers will probably have to bear a large bulk of the costs….again.

That has always been the way. Competition was deliberately introduced with lax price controls to encourage switching. It was a relatively undocumented cost of introducing competition to jump-start the market.

And with the costly green agenda coming which will impact on energy bills, will the current model of retail competition be sufficient or will Ofgem have to do more? Or will there be a need for a new regulator? Perhaps someone who isn’t tied to past mistakes? Questions should be asked.

Dominic Maclaine is an EPG Associate and used to be the editor of New Power before he sold the business. He conducted PhD research into electricity supply competition in the UK and Norway at SPRU. He was previously the editor of the monthly newsletter Power UK published by Platts (and previously the Financial Times). He is currently writing a book about recent developments in the UK electricity market, to be published by Routledge.

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