It seems that the key to keeping a lid on gas and electricity prices in the UK is introducing more competition. Although there are more than 20 gas and electricity suppliers operating in the UK, the market is dominated by the biggest six. A comprehensive inquiry into the UK’s energy market has recently been announced by the government, which should pave the way for more competitors. But what should be expected from new entrants into a failing market?
Commitment to Competitive Pricing
One of the biggest criticisms levied at energy companies is the fact that their prices tend to remain very similar. The ‘big six’ energy companies almost invariably raise prices in unison, leaving consumers with no viable alternatives. Any new player in the energy market will need to demonstrate its commitment to competitive pricing if it is to steal significant market share in an industry that is dominated by just a few operators.
Investment in Renewables
There is absolutely no doubt that fossil fuels will run out some day. It is also the case that carbon-based fuels are probably contributing to global warming. New energy companies must set an example to the whole market by committing time, resources and good will to the development of renewable energy sources. The government should be clear in its message that energy companies have a responsibility to both the country’s future energy security and the health of the planet.
Investment in Infrastructure Projects
The UK has an ageing network of power lines and gas networks. A growing population and increases in housing mean that investment in our energy grids has never been so important. While energy companies will have an understandable desire to drive profits, that should not be at the expense of vital infrastructure projects. New energy companies must be mandated to commit a significant percentage of their income to improving the UK’s power network.
Clear Pricing Policies for Consumers
One of the barriers consumers face when trying to compare energy rates is the complex nature of tariffs. Some suppliers have dozens in place, which leaves the average consumer confused about which is the best for their requirements. New entrants into the energy market need to have a clear and concise pricing model. They should also help consumers to choose the tariff that best suits their energy use.
An easy Switching Mechanism for Consumers
Apathy and confusion are two reasons why UK energy consumers often don’t shop around for the best deals. Switching between suppliers is considered time-consuming, stressful and hard work, which is why so many people simply stick with what they know. New energy companies need to have a clearly defined mechanism for switching supplier, which should be regulated by OFGEM. The best way to drive down prices is through fierce competition, but that is impossible when so many energy customers are wary of the switching process.
While attracting new energy companies to an uncompetitive market is vitally important, it should not be at the expense of fair competition, commitment to renewables and investment in the future energy security of the country. If these expectations are laid out bare from the outset, new suppliers are more likely to deliver a fairer and cheaper service to consumers.
Colin Urquart is a political commentator and energy blogger. He works with various agencies to support change in the energy sector.