How far is Ofgem willing to go and how far can it go?

By Stephen Roberts January 10, 2018 10:00 am

It’s fair to say there’s a lot of resentment towards the Big Six – perhaps soon to be the Big Five after the announcement that SSE and Npower plan to merge – and it also seems to have reached a critical mass. The Big Six and their perceived grip on the supply market was a major battleground in the most recent General Election, a major battleground in the 2015 General Election following Ed Miliband’s proposed price cap on household bills in 2013 and is highly likely if unchanged to remain disputed territory for future political wars.

Ofgem itself recently acknowledged in its maiden State of the Market report that the traditional supplier hob model was at risk of breaking down as the UK power market decentralises. Rather than let that happen, Ofgem seems set on breaking it down pre-emptively. Certainly Ofgem is hardly seen as the most proactive organisation, with Dermot Nolan recently admitting at the EnergyUK conference that his team know they have more to do. Though perhaps they still have a purpose despite calls from Dieter Helm in his review of the price into energy to strip Ofgem of most of its powers.

Nolan in a recent blog piece argued that as middlemen suppliers are becoming “less relevant – or even redundant”. In the case of electricity why would you buy copious amounts from your expensive supplier when engaged consumers would like to purchase it from their neighbours, from renewable focused community energy schemes or even avoid purchasing power at all by generating it yourself. The Big Six energy suppliers however are still behemoths and will not roll over and be assigned redundancy by Nolan without a fight.

The area that the Big Six will rely on for continued dominance will be the gas markets. The electricity supply market is becoming increasingly saturated with newer and more innovative companies applying for supply licenses. They are able to easily trade energy with one another through due to increased data flows. However, it doesn’t currently seem obvious how a peer-to-peer energy trading scheme will apply to gas, which is begrudgingly what our energy system is reliant on, particularly in the winter periods when vast amounts of energy are required to heat our homes in a very short period.

Ofgem has set itself up for a gargantuan task and a gargantuan fall if it is unable to reform the market to create a high-tech route to market for innovative companies, many of whom leverage big data, to create vast savings for consumers. At the end of the day, Ofgem’s aim is to “make a positive difference to energy consumers”. So, do we mark inability to shake up the status quo and get new innovative services to consumers a failure? Currently the media and political glare is firmly focused on the Big Six as the enemy and roadblock to innovation. Ofgem should be wary that this glare is not refocused on them if they fail to assist innovators who ultimately will make up the energy market of the future.

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