CMA energy market investigation

The Competition and Markets Authority (CMA) has concluded its energy market investigation setting out a wide range of reforms to modernise the market for the benefit of customers.

Over 30 measures will be brought in after the most comprehensive investigation into the energy market since privatisation. These will drive down costs by increasing competition between suppliers and helping more customers switch to better deals, whilst protecting those less able to benefit from competition. They will also bring in technical and regulatory changes to modernise the market and ensure it works in consumers’ interests.

The CMA has today published a short overview of its investigation, a summary of the report (PDF1.12MB82 pagesitself and a range of other materials for consumers and businesses together with its final report.

The investigation has found that 70% of domestic customers of the 6 largest energy firms are still on an expensive ‘default’ standard variable tariff. As these customers could potentially save over £300 by switching to a cheaper deal, the Competition and Markets Authority (CMA) will be enabling more of them to take advantage. The CMA has found that customers have been paying £1.4 billion a year more than they would in a fully competitive market.

Suppliers will be ordered to give Ofgem details of all customers who have been on their default tariff for more than 3 years, which will be put on a secure database to allow rival suppliers to contact customers by letter and offer cheaper and easy-to-access deals based on their actual energy usage. Ofgem will control access to the database and carry out testing on the frequency and form of communications, to ensure it is effective in helping customers move on to better deals. Customers can opt out at any time if they wish.

The options to switch are far more limited for the 4 million households on prepayment meters. For these customers, a transitional price cap will be introduced which will reduce bills by around £300 million a year. The cheapest tariffs for such customers are currently £260 to £320 a year more expensive than those available for direct debit customers. The price cap will remain in place until the introduction of smart meters removes the limitations on such customers accessing better deals.

The CMA is also introducing a range of measures to revitalise competition and reduce the costs borne by customers. These include pressing ahead with reforming outdated systems for measuring and charging energy that distort competition between suppliers, reducing the costs of transmitting electricity and using competition to help ensure that financial support for low carbon generation is allocated at the lowest cost to customers. Price comparison websites (PCWs) will also be enabled to play a more active role in helping customers find the best offers for them and given access to meter data which will enable customers to search instantly for deals.

The measures will also tackle specific issues faced by microbusinesses (those that employ fewer than 10 people) – 45% of which are on default tariffs. Suppliers will now be required to publish their prices for such customers and will no longer be able to lock them into expensive ‘rollover’ contracts.

Ofgem will also be given much greater influence over the detailed codes that govern the working of the market – and which currently give undue influence to established industry participants over decisions that affect competition and consumers – and more powers to enable it to scrutinise the performance of the market and suppliers as well as the impact of policy.

Roger Witcomb, Chairman of the energy market investigation, said:  "Competition is working well for some customers in this market – but nowhere near enough of them. Our measures will help more customers get a better deal and put in place a modernised energy market equipped for the future.  With far too many customers paying hundreds of pounds more than they need to, they will be alerted to the better value deals that are out there and it will be easier for them to identify a good deal and switch to it. Those that can help with this process, like price comparison websites, will be given the ability to play a more active role. In other markets, they’ve played a big part in driving down prices, increasing switching and enabling suppliers of all sizes to reach customers and, freed up, they can do the same here.

"More active customers will not only save themselves money but keep suppliers on their toes, addressing many of the problems that we’ve identified. There are promising signs in this market with smaller suppliers getting more of a foothold and making it easier for customers to get involved will push things more quickly in the right direction. For those customers on prepayment meters, whose options to switch are far more limited, we’ll cap prices until the time that they too can benefit from competition.

"As well as helping customers switch, there are many other things that need to be done to make this market work better over the coming years and address all those elements that contribute to the final bill for customers. Modernising the market will equip it to meet future challenges and allow it to take full advantage of the forthcoming technological advances, such as smart meters, which have the potential to transform the way we use energy.

"As part of this, we’re going to strengthen the ability of Ofgem to push through change, to keep the market and suppliers under the microscope and to scrutinise government policies. With climate change and energy policies having an increasingly large effect on bills, it’s essential that decisions, particularly on support for new forms of generation, are made – and seen to be made – in the best interests of customers.

"We believe our measures alongside other future developments will mean energy customers see real improvements over the years ahead."

The changes will be accomplished via a combination of CMA Orders and recommendations to Ofgem and government. The CMA will shortly publish a timetable setting out this remedies implementation process over the next 6 months. All information published in relation to the investigation (including the full report and appendices later today) is available on the energy market investigation case page.

DECC's Single Plan 2015-20

The Department of Energy & Climate Change (DECC) describes its priority objectives for 2015 to 2020, in the Single Department Plan, which can be downloaded in full here.

The elements of most interest to LEPs will be:

Heat Network - providing over £300m of funding for local heat infrastructure over the next 5 years;

Public Sector Energy - investing a further £295m in public sector energy efficiency over 5 years to cut energy costs, save carbon and free up resources for other priorities;

Innovation - has a key role to play in driving the development of cheaper clean technologies, which is why we will more than double DECC’s innovation programme to £500m over this Parliament, providing start-up funding for promising new low-carbon technologies;

Small Scale Neuclear - investing £250m in an ambitious nuclear research and development programme, enabling the UK to be a global leader in innovative nuclear technologies. This will include a competition to identify the best value small modular reactor (a small scale nuclear generator) design for the UK, paving the way towards building one of the world’s first small modular reactors in the UK in the 2020s.

Implementing Geological Disposal

Look out for news later this year about a major new nationally-significant infrastructure project, which will provide substantial investment to a local economy for the next 100 years and beyond.

In line with every other major country, the UK plans to construct a Geological Disposal Facility (GDF).  The multi-billion pound project has the potential to act as a catalyst for other investment, to transform a local or regional economy on a sustainable basis into the next century.

The Government announced its intentions in the 2014 White Paper, Implementing Geological Disposal White Paper.  A GDF is a highly-engineered facility in which the nation’s higher activity radioactive waste is placed deep underground, contained inside protective packages, isolated by geology to ensure that no harmful quantities of radioactivity ever reach the surface environment.

Following the model adopted internationally, the UK Government favours a consent-based approach, in which communities have to be willing to participate in the siting process.  A GDF is likely to bring significant economic benefits to a community that hosts it, in the form of long-term employment and infrastructure investment, and in the form of additional community investment that the UK Government has committed to provide.

The Government is still developing policy, and two major public consultations are expected in the autumn, which will shape how this process operates.  A public sector body, Radioactive Waste Management, has been appointed as developer.  If you want more information, you can email RWM, or be alerted to developments and announcements by subscribing to an e-Bulletin service.

Civil Nuclear Industry - Jobs Map 2015

For over a decade the Nuclear Industry Association (NIA), the trade association for more than 260 companies, has released an annual Jobs Map for the UK civil nuclear industry.

There are over 60,000 jobs across the UK civil nuclear supply chain covering a wide variety of expertise including power station operations, research, legal services, waste management and decommissioning.

The Jobs Map displays clearly the range and diversity of companies across the UK and the number of employees engaged in the civil nuclear industry.

This tool is designed to give Government and decision makers up-to-date and accurate figures, reflecting the vital contribution NIA members and their employees make to the UK economy. You can download the full map here.

With the growing threat of climate change, nuclear energy is essential to meet the UK’s future clean energy needs. Along with renewables and energy efficiency, nuclear can reduce carbon emissions. As part of a diversified energy mix, nuclear-generated energy can provide safe and reliable sources of power for UK homes, hospitals, schools and industries. The NIA have produced a 'Nuclear Energy Facts' booklet that sets out how nuclear energy works and highlights some of the benefits it can bring.