Juliet Davenport, CEO of 100% renewable electricity supplier Good Energy, here argues that proposed reform of energy tariffs could jeopardise the future of green schemes such as the Green Energy Supply Certification Scheme. These schemes provide clarity and transparency to the consumer but currently face the axe under Ofgem proposals.
“Energy tariffs have hardly been out of the headlines in recent months, and for all the wrong reasons. The highly complex and opaque nature of our energy market often leaves consumers with far more questions about why their energy bill is going up than answers. Dissatisfaction levels have rocketed and confidence in the market has plummeted.
Currently, the dilemma of how we reduce carbon emissions whilst making the necessary large investment in infrastructure is almost exclusively focussed on two things – the generation and consumption of electricity. But we need to pay more attention to the role of the middle men in the market – the energy retailers, like Good Energy –in linking these elements through the energy tariffs we offer our customers.
There are some early positive initiatives. The independent Green Energy Supply Certification Scheme offers ‘guaranteed’ green tariffs and therefore encourages households and small businesses to use renewable electricity to reduce their carbon emissions, stimulating investment in new renewable generation in the process. At a time when planning approvals for new wind farms are plummeting, discounted local electricity tariffs should ensure that communities benefit financially from having a wind farm in their midst, reducing local objections to new sites. Tariffs linked to smart metering have the potential to give households more control over their energy use and help suppliers manage a smarter grid system, bringing costs down.
Suppliers are now looking at new ways to capitalise on the next generation of smart energy infrastructure to deliver new tariffs that will transform consumers’ relationship with the energy they use. In particular, the smaller and more innovative suppliers, such as Good Energy, have led the way in developing these products as a means of differentiating themselves from the distinctly bog-standard and overly-complex tariffs that the larger suppliers have offered over the years.
These forward-thinking customer-friendly ideas are, unfortunately, under threat from Ofgem’s plans to simplify energy tariffs. In its desire to be seen to respond to wider consumer dissatisfaction with the energy market, the regulator has lurched towards a set of ham-fisted proposals that will pull the rug from underneath those suppliers seeking to provide tariffs that consumers want and the market needs.
Because they will only be allowed to have one standard, variable rate tariff, suppliers will limit innovation to fixed-term, fixed-price tariffs. But the rigid nature of those tariffs will naturally preclude them from developing the best possible product. For example, if a supplier were to offer a discounted local electricity tariff that was fixed both in price and length of time, but the price of other tariffs on the market became cheaper during the time period of that tariff then clearly any benefit from the local tariff would disappear, leaving the consumer locked into the more expensive tariff. Larger suppliers will be deterred from offering a certified ‘green’ tariff as a standard product, which could lead to the collapse of the only scheme which gives consumers certainty about the provenance of their electricity supply.
Other more complex problems exist. Creating new, smarter fixed tariffs relies on the ability of all suppliers to buy power from the wholesale markets cheaply and easily. Unfortunately the UK market is still geared to the ‘Big Six’ in that regard, and it will be harder for smaller suppliers to offer competitive tariffs.
The end result is that energy and climate-change policy risks missing the final link in the chain - the link between how electricity is generated, and how it is used.
Good Energy has a proud track record of campaigning for an energy market founded on simplicity and transparency, so that the consumer, not the supplier, is in the driving seat. But there is no need to sacrifice the kind of innovation that helps deliver just that. This will become increasingly important as our market becomes more intelligent and consumers' expectations increase.
The energy regulator appears to be sacrificing the best elements of the energy market of tomorrow to gain headlines today. Instead, it must recognise that tariff simplification has to be undertaken without harming the kind of innovation that is in the best interest of consumers, the best interest of the market and the best interest of the UK.
A simpler, clearer and more transparent energy market? Definitely. In the way that Ofgem proposes? No.”
Juliet Davenport is founder and Chief Executive of Good Energy, the UK’s leading renewable electricity supplier. Since Good Energy was founded over 10 years ago it has effected real change in the energy market. It now has 28,000 customers and supports over 12,000 independent green generators. Its goal is to help the UK to a 100% renewable future. Juliet has won several accolades for her work, including PLUS Markets CEO of the year 2009, 2010 and 2012. Good Energy has won a Sunday Times Best Green Company Award twice, an Observer Ethical Award and was named West of England Business of the Year 2009.