In February The Institute for Public Policy Research (IPPR) think tank released analysis which found that as many as 5million people are being unfairly overcharged for their energy use by as much as £330. It said the differences could not be justified by the costs of providing different payment methods and that the findings support claims that many consumers are being overcharged to subsidise heavily discounted, loss-leading tariffs used to attract new customers; which only benefit the small minority who regularly switch suppliers.
That research was part of a larger report, supported by Ovo Energy, which has been released todayhttp://www.ippr.org/publications/55/9040/the-true-cost-of-energy-how-competition-and-efficiency-in-the-energy-supply-market-impact-on-consumers-bills in order to address a fundamental question: what is the real cost of providing the nation with gas and electricity? It asks questions and examines the true cost of the energy we have to buy. It reveals how difficult it is to uncover this information and establish what consumers should fairly expect to be charged and it suggests that the bigger energy suppliers are not being as efficient as they can be. If they're not, as a customer, you're paying more than you should.
The IPPR has calculated that without reform to the energy market consumers could miss out on as much as £1.9bn in 2020 in cheaper bills. How? Well, in a mid-range scenario - based on precedents from regulated and semi-competitive energy markets, as well as other sectors - energy suppliers could achieve an annual efficiency saving of 2.5%, equivalent to £70 per annual energy bill and savings of £1.9bn in 2020. This is the cost to you and me of a lack of competition. In fact, the IPPR estimates that these savings would cover the costs to consumers of various Government levies - the carbon floor price, feed-in-tariff, Electricity Market Reform, Warm Home Discount and most of the Renewables Obligation combined.
It also found that the costs to suppliers of delivering environmental and social obligations may be £9 per customer per year less than Ofgem, the industry regulator, estimates. And in a competitive market, operational costs should converge as time goes on, yet the differences between various suppliers' operating costs were greater in 2010 compared with 2007.
The report's findings support a view that bills could be lower with more competition. Twenty years after deregulation, 99% of all consumers are still with one of the 'Big 6' energy suppliers and deregulation itself has failed to stimulate competition with simpler pricing, more transparency and fewer tariffs - all things Ovo Energy been calling for since we started up in 2009. We think the effects of the lack of competition are things we should all be concerned about and we believe it's the job of Ofgem and the Department for Energy and Climate Change to remove barriers to competition and so give consumers a fairer deal. We think bill-payers have the right to expect choice, innovation and value for money. This report aims to assist and inform discussions about how to make the retail market better for consumers, and shows they're getting neither choice nor value today; we believe fundamental change is long overdue.
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