If people don’t trust the energy market, how is it going to help get us to net zero?

The past 3 years have been turmoil for energy consumers in the UK. Energy suppliers have repeatedly had the worst rated customer service of all markets, bills are still two thirds higher than in 2021, and those who are struggling most aren’t getting adequate support to keep themselves warm at home. It’s understandable that many people feel overwhelmed. Just yesterday, Ofgem, the energy regulator, launched a new ‘consumer confidence’ programme of work to tackle these poor standards.

However, changes in the market as we transition to net zero offer an opportunity to turn the page. These will mean people have more choices about how they keep their homes at a comfortable temperature, and power things they need, including their cars. This could be less costly to consumers as well as the environment.

The problem is that some of these changes can feel very uncomfortable. People need to trust the organisations who are going to offer new products and services, or they won’t choose them at all. How can consumers be sure that those new products and services won’t make the turmoil they’ve experienced in the energy market even worse?

The answer: a Consumer Duty

People need to know that suppliers are on their side — but current regulation and market outcomes aren’t achieving this. A Consumer Duty does just that; it’s a rule that requires companies to ‘act to deliver good outcomes for consumers’ in all their activities. If companies focus on the consumer’s experience and objectives, consumers will be better off all round.

That’s why since 2021 we’ve been calling for essential services regulators to follow the example of financial services and introduce a Consumer Duty — a step that Ofgem has now committed to consider as part of its consumer confidence programme.

Let’s imagine a Consumer Duty working in a net zero world. Products may launch which bundle services, as some phone contracts currently do. One example deal might be the ‘Triple Upgrade’, offering, for a fixed monthly fee:

• a new heating system to replace your gas boiler
• a smart car charging system
• your energy needs covered

A Consumer Duty would ensure that:

• the Triple Upgrade isn’t targeted at consumers who won’t benefit because the terms won’t work for them (like if they aren’t able to charge their car on a ‘smart’ schedule)
• people pay a fair value for the combined service, rather than facing hidden costs
• people could adapt their monthly deal if their income suddenly drops because of an unforeseen vulnerability (like bereavement)
• people have the same standard of regulatory protection for their energy billing as for loan repayments on the new installations

Even if a Triple Upgrade customer did have a problem, the regulator should more easily be able to hold suppliers to account. Suppliers would have to show how they’d taken steps to ‘avoid causing foreseeable harm’, including monitoring outcomes on an ongoing basis and adjusting based on consumer experiences. As services get more complex and driven by data and AI the balance of power may tilt towards suppliers. The Consumer Duty puts the onus on firms rather than consumers to ensure they’re meeting consumer needs.

Change for the better

Current energy regulations leave some major gaps in protection for people using new types of energy services:

• products not covered by the price cap on default tariffs have no requirements to offer fair value
• when offered by suppliers at the point of sale, products must be appropriate for the customer. But if the customer’s needs change they could be locked into an unsuitable contract.

The Consumer Duty, meanwhile, would require all products to offer fair value, and to meet customer needs throughout their use. Customers would be protected from being sold, or locked into, poor value deals which don’t meet their needs. They could be more confident to sign up to more complex services with longer contracts.

A Consumer Duty should also mean the regulator doesn’t need to play catch up with product or business-specific rules as new market offerings emerge. Instead a Consumer Duty could allow firms to innovate within clear boundaries, or offer more specialist services. This would challenge other suppliers to improve their own services, boosting competition and the quality of energy products.

Many existing regulations could be retained for traditional energy tariffs — like the energy price cap — but just as the Financial Conduct Authority is using the Consumer Duty to streamline its rulebook, there are likely to be opportunities for Ofgem to do the same.

To sum up

We’re at an exciting moment in the move towards having clean, affordable and secure energy. The government has promised to make Great Britain a clean energy superpower and reform the energy system. We need to make sure that progress doesn’t get stuck on the hurdles of clunky regulation and low consumer trust.

Introducing a Consumer Duty could enable the government to deliver on both parts of its manifesto promise: to ensure a much tougher system of regulation that puts consumers first, and attracts the investment needed to cut bills. Ofgem yesterday published that they would be considering a move to the Consumer Duty approach. We hope that in reading this, that consideration becomes even more urgent.