The UK has an opportunity to drastically reform its dysfunctional energy markets and improve the transparency and competitiveness of supplies, according to Juliet Davenport, the founder and CEO of alternative provider Good Energy.
Ofgem said last week that the average household dual fuel bill had risen to £1,345 per year, with companies making £125 per customer in August – an increase of more than 700 per cent since June.
Prime Minister David Cameron held a summit on Monday to discuss possible solutions for bringing household bills down to manageable levels ahead of a winter that is already seeing households squeezed by rising prices of basic goods and stagnant incomes.
The regulator called for more transparency in pricing information released to consumers, allowing them to choose cheaper tariffs. Recommendations for deeper reforms to the competitiveness of the industry are due in November and December.
The six largest producers – who met David Cameron and energy secretary Chris Huhne yesterday – are under little pressure to reform, Davenport told the Huffington Post UK.
“Because of the structure of the marketplace there’s very little threat to the big six of anybody else coming into the market,” Davenport said. “None of them really feel a lot of threat from new entrants. They know that they tend to control where all of the power comes from.”
Transparency in wholesale markets is a major block to new entrants trying to build scale in the market. Opaque pricing of energy means that the bigger providers hold most of the cards, according to Davenport.
“If you want to buy a share in a publicly quoted stock tomorrow, you could pretty much expect … to be able to see what that price is. If you want to buy energy tomorrow it’s very difficult to understand what everybody else is buying and selling that energy at,” she said. “There’s no transparency in this marketplace. It was never set up like that, and the question has to be, well, why wasn’t it? Obviously the people who control most of the power control most of the information.”
Davenport launched Good Energy in 1999, sourcing electricity from independent renewable energy producers, mainly households with their own solar, wind or hydro generators. The company launched its own windfarm in Delabole, Cornwall, in 2010, and has signed an option on a second project.
Ofgem last reformed the wholesale energy market from its old pool system in 2002.
“At the time we didn’t really need massive investment in new infrastructure, and essentially the market at the time sweated the assets that we had, but going forwards, that’s not the case anymore,” Davenport said.
It is estimated that up to £200 billion worth of investment is needed for the UK to replace its ageing power stations and to begin the transition to lower carbon forms of generation. This gives the government and regulators an window to force reform.
“Now there’s an opportunity to say: ‘has this market delivered what we wanted? And going forward, if we want to deliver stable prices for customers in the UK, what should this marketplace be trying to do?’,” Davenport said. “When they moved it from a pool market to the market structure we have today, they really didn’t do it properly and they haven’t really wanted to lift the lid and go “well, what did we do wrong and what do we need to do now?’”
As the head of a company focused on renewables, Davenport also takes issue with the figures released by Ofgem suggesting that investments in green energy infrastructure and energy efficiency added £100 per year to consumers’ energy bills. Some in the media and in business jumped on the number as indicative that government emissions reduction policies were a drain on household finances.
Environmental pressure groups counter that price increases were in a large part due to the increased reliance on natural gas for power generation.
Davenport adds the £100 figure includes contributions from a number of different sources, not all of them explicitly “green”.
“I think the detail on this has to be got right. I think Ofgem needs to be careful about how it releases this information, because not all of it is on green energy,” she said. “It’s actually costing us very little compared to a lot of the other areas of work.”