Why cheap energy deals are bad for consumers
Years of energy policy has been about increasing the number of suppliers, encouraging switching and cutting prices.
This has worked by driving customers to cheap deals with new entrants that target online savvy customers and avoid those who might just need that extra bit of help.
But the pursuit of lowest price above all else has come with unintended consequences.
Eleven suppliers have gone bust in the last 18 months, leaving an estimated £170m in unpaid bills – a cost ultimately picked up by the customer.
Consumer groups are also concerned about standards of service, particularly support for the vulnerable who require more assistance.
The service league table published today by charity Citizens Advice shows a varied picture. The top 10, led by energy giant SSE, features a mix of large and small suppliers competing on quality of service as well as value for money.
But there is a huge gulf between the best and worst performers, with those at the bottom end offering bargain-basement prices with service to match.
Of more concern is that Ofgem, the energy watchdog, has highlighted worries that smaller suppliers and new entrants show a poor understanding of the term vulnerability.
It’s good to see that regulation is beginning to catch up. Tougher rules on market entry and monitoring of supplier performance are being introduced. The new "vulnerability strategy" is also welcome. Being an energy supplier is about so much more than offering the cheapest price.
Essential service providers have a duty of care to their customers, especially the most vulnerable. We’re proud of our service record and to have earned the British Standard for Inclusive Service Provision recognition – the gold standard in identifying and responding to vulnerability in all its forms.
But Ofgem is right to point out the huge differences in standards across the sector.
As an industry, we’re at an inflection point. We have one of the most competitive domestic supply markets in the world with more than 60 suppliers. Almost half of customers have changed their supplier in the last four years – considerably more than anyone switching their home insurance or broadband.
But many customers are dissatisfied with the service they receive. It’s time to stop encouraging the race to the bottom and pursuit of lowest price above all else.
With the price cap in place and the regulator setting the efficient cost of supplying energy, customers can be assured that the price they pay is fair.
Now is the perfect opportunity for an honest debate about the future.
Ofgem will need to make an assessment on when the market is ready for the cap to be lifted, and it therefore needs a strong vision of the market it wants to create.
But it’s clear that customer protection and high service standards need to be front and centre. We must ensure no customers are left behind or picking up the tab of irresponsible supplier behaviour.