In an interview with LexisNexis, Anna Sweeney, senior knowledge lawyer, weighs in on progress made concerning energy saving policies and provides a glimpse into the energy landscape in 2019.
What action has been taken so far on making it easier for customers to switch energy suppliers and access discounts? What more could be done in this area, and are there any consultations to note?
The Competition and Markets Authority’s (CMA) energy market investigation final report in 2016 identified that 56% of the people it surveyed had never switched supplier, did not know if it was possible, or did not know if they had done so—around 70% of customers were on the standard variable tariff. The CMA went on to make various recommendations that would make it easier for consumers to switch energy suppliers.
The Office of Gas and Electricity Markets (Ofgem) responded to this by drawing up a faster energy supplier switching programme (see the Outline Business Case and the June 2018 consultation on implementation) that will allow next-day switching, by introducing a new Retail Energy Code (REC) and replacing the existing switching services with a new Centralised Switching Service (CSS), which is being delivered by the Data and Communications Company, who are also responsible for the smart meter rollout. The first transitional version of the REC will take effect on 1 February 2019 and the final scheme, with the CSS, will begin in 2021.
So, progress on switching is being made, but slowly. There is an argument that the introduction of the cap on standard variable tariffs will make consumers less likely to switch, as there is less of a fear that they are being ‘ripped off’ by their energy supplier.
What other progress has there been in 2018 for energy saving (eg smart metering and energy efficiency initiatives or incentives)?
A recent BBC news article highlights the unsung contribution that energy efficiency measures are making. UK electricity generation peaked around 2005, but has now reduced back to 1984 levels, due to reduced energy demand. This is not what you might expect when we all seem to be using more electrical gadgets than ever before—even cars are going electric. Following the Smart Systems and Flexibility Plan, the government consulted on proposals regarding smart appliances (those which are connected to a communications network and are able to respond automatically to price or other signals by modulating their electricity consumption) and wants to legislate for regulatory requirements and a labelling scheme ‘when parliamentary time allows’. The government also wants all government-funded home electric vehicle (EV) charge points to be ‘smart’ by July 2019, which will help EV drivers to be able to charge at times of lower demand, and even to be paid for vehicle to grid services, giving power from the car battery back to the grid at times of high demand.
The programme to offer every household and small business a smart meter by December 2020 continues and should help consumers reduce their energy use by being able to see in real time how much energy they are using and what it is costing. This should also encourage time of use tariffs, encouraging consumers to use energy at times of lower demand when prices are cheaper, helping to smooth out the peaks and troughs of demand. The latest National Audit Office report (November 2018) is sceptical whether the roll out will offer as much value for money as the government claimed, and pointed out that the roll out is behind schedule and more SMETS1 meters (which might not be able to ‘talk’ to other suppliers if a consumer switches supplier) have been installed than originally intended.
What has the progress been around green energy tariffs and in particular, the work of the Green Finance Taskforce?
The Green Finance Taskforce published its report to government on accelerating green finance in March 2018. The report’s recommendations included:
- the launch of a new Green Finance Institute brand by the government and the City of London, to include a Green Fintech Hub and the delivery of a joint diplomatic strategy
- focus by companies and investors on climate-related financial disclosures, with government review in 2020
- government encouragement of green lending products in the property and consumer sectors in particular
- setting-up a Green Investment Accelerator for early stage technology funding and establishing a public-private green venture capital fund
- establishing a Sovereign Green Bond, in the order of the French sovereign bond of €9.7bn
The government has yet to respond to these recommendations.
In October 2018, the government issued a tender for proposals to raise and manage a £20m Clean Growth Fund, which will be an equity fund with a mandate to invest in companies seeking to commercialise innovative clean technologies including renewables, EV, storage, greenhouse gas emission reduction and efficiency. The Clean Growth Fund is set to launch on 1 May 2019.
Several private sector companies, such as SSE, have issued their own green bonds to finance (or in SSE’s case, refinance) renewable projects. We can see these becoming more common as the subsidy regime in the UK lessens (only £60m has been allocated to the next round of contracts for difference taking place in May 2019).
What should energy lawyers keep an eye out for on the domestic supply side of the energy market in 2019?
The standout point of 2018 in the domestic energy market was the collapse of several smaller suppliers. This was due to a range of factors:
- inexperience of the market
- cash flow issues
- the ‘supplier hub’ model whereby suppliers have to pass on the costs of running the energy networks and the renewable incentive schemes to consumers, often by having to forecast these in advance and hoping that there would not be too much of a backlog to pay once the forecasts are reconciled
Ofgem are taking steps to remedy this, looking at reform of the supplier hub model and tightening the licensing requirements for new entrants and introducing the cap on standard variable tariffs. These reforms will continue during 2019. We can also expect a decision on whether and how Ofgem will implement half-hourly settlement of domestic and smaller non-domestic electricity users. This will pave the way for time of use tariffs and could transform the way we use energy as consumers will have a price incentive to use it at times of lower demand, eg at night.
Interviewed by Devon Marshall.