A new default tariff would create a level playing field for utilities, says the Institute of Directors UK
Greater transparency around billing is what the Institute of Directors (IoD) UK is calling for in a report that has just been released. It suggests that the next government force energy companies to create a new transparent default tariff that shows customers exactly what they are paying for. The report says that instead of fixing energy bills, customers should understand exactly how much they pay for wholesale energy, transmission and other fixed costs.
In the report, the IoD says that a more transparent bill will boost competition in the energy market. Currently, customers face a complex range of pricing such as fixed prices or standard variable tariffs which have been criticised for not falling when wholesale energy costs fall.
IoD says that if the UK regulator Ofgem was tasked with overseeing the creation of a new default tariff, consumers would be able to judge different companies in an equal, transparent footing.
Dan Lewis, Senior Infrastructure Adviser at the Institute of Directors said: “Energy bills have become the latest political football, with both the Conservative and Labour reaching for interventionist solutions. There is clearly a problem, with standard variable tariffs not falling as wholesale prices fell from 2014 to 2016. But cap or freezes don’t help competition in the long-term, and we really shouldn’t trust politicians to set the price and predict the market response. Something does need to be done, however, so we would support giving Ofgem responsibility for creating a truly transparent default tariff, which enables customers to see exactly how one company’s offering compares against the others.”
Despite the efforts of past UK governments, shopping around for more competitive electricity deals has yet to catch on in the UK retail energy market. Currently the switch rate is just 15.8% of gas and electricity customers, even though switching rates in 2016 are recorded as being the highest in six years, according to Ofgem.
Most customers find themselves stuck with the standard tariffs that Theresa May, prime minister, wants to tackle through the proposed energy price cap. According to Ofgem, two-thirds of households are currently on these deals, even though a record number of suppliers — 52 at the end of 2016 — are now competing for their business.
Big energy suppliers such as British Gas-owner Centrica, which have a large number of customers on standard rates, say the market is highly competitive and initiatives to improve switching rates should be given time to work.
The report makes a few other suggestions:
There is a need for the delivery of cheaper and more sustainable nuclear energy beyond Hinckley Point C. It is suggested that the government organise large auctions when searching for nuclear suppliers, thereby encouraging a UK-based nuclear supply chain that comes with scale.
There is also significant potential of shale resources that should be harnessed to reduce expensive energy imports, the report states.
With renewable prices falling, locking in fixed subsidies for years to come through feed-in tariffs is very expensive. Moving to auctions will help the industry adjust to the new reality.
The UK’s smart meter rollout has not been an easy ride. With incompatible meters, missed deadlines and ballooning costs, the rollout is viewed as a complete failure by some.
The report states that the next government should pause and take stock of the situation and see where savings can be made.