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The Government’s announcement to reduce energy bills by an average of £50 per household per year will temporarily be a welcome relief – but only for customers of the larger energy companies. The cuts to the Energy Company Obligation (ECO) insulation scheme, which will account for a £30-35 bill reduction, as with other green levies, apply only to those suppliers with over 250,000 customer accounts or 125,000 dual-fuel customers. At present that means only the Big Six energy companies plus First Utility.

In the battle against high bills, many have argued that the Government is threatening the success of energy efficiency schemes, or at least, the public perception of their importance in driving down consumption and therefore driving down costs to the consumer. But might the ECO changes also threaten good competition in the energy market and the Government’s support of new and emerging suppliers?

Not long ago, the Energy Minister, Michael Fallon MP, used ECO as a tool to encourage competition, arguing that Government is “looking very hard at how we can encourage the smaller companies to grow; for example, the ECO threshold, which we have already increased once. If we increased it further…that would encourage them to grow.” And had vowed to “light matches under the feet” of the Big Six energy suppliers with a series of measures to boost competition and help smaller companies to poach their customers.

Collective switching has also been harnessed by Government to attract customers toward a better deal, which can often be sought from new suppliers, who do not yet breach the threshold to qualify for ECO. Reducing the cost for customers of the larger energy suppliers, might conversely encourage customers to stay rather than go, based on the new knowledge that their bills will now be lower. As we know from this summer’s Ofgem Tracking Survey the proportion of customers who switched supplier in the last year had fallen for the fourth year running for gas (to 11%) and for the fifth year for electricity consumers (to 12%). Perhaps we will see this fall even further.

Cutting green levies with no complementary strategy, or in apparent contradiction to other initiatives, will take us back to a purely ‘free market’ position in which the larger energy companies are more likely to win. Measures need to be put in place to further enable a diverse market, rather than a return to the status quo.

Facilitating such competition will require a discussion that reaches beyond the narrow debate regarding the cost of energy bills. And Government can to far more than adjust what it controls. Ramsay Dunning (General Manager of Co-operative Energy) has argued for Government to compel that all power generation be traded through a single wholesale market to encourage openness and transparency. He adds that just as we have a single stock market and a single index, the FTSE, we should have a single power market and an Energy Supply Index (ENSI).

I would argue further that Government should introduce incentives to ensure that competition is based on social and environmental value, rather than price alone, to ensure that independent generators, such as community-owned energy and initiatives that deliver significant social and local benefits, are brokered into the market. In Germany, which has over 900 licensed suppliers (compared to our 30), customers are flooding to local energy companies that can deliver more than low cost bills. In Schönau, South West Germany, for example, the energy supplier and distribution network, EWS Schönau, operates as a co-operative where the consumers are also the members (and investors) and in which all energy is purchased from local and renewable sources.

As I have argued previously, turning the market on its head in this manner will deliver a truly transformative solution to our cost of living crisis, rather than a return to the status quo.

Caroline Julian is Head of Research at ResPublica.

Follow Caroline on Twitter.


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