Competition in the energy retail market can result in attractive deals being offered to customers who are prepared to shop around, but it can also result in unequal outcomes for different customer groups, with those less willing or able to shop around paying higher prices.
As a result of this feature of retail market competition, the GB retail energy market has experienced a number of regulatory inquiries and interventions over the last decade. With similar interventions being contemplated in some other markets, can the experience in GB provide lessons for other markets?
The New Zealand government commenced an inquiry into the national electricity market, driven particularly by perceptions of ‘unfair’ pricing practices in the retail market. Trustpower – a large integrated energy company in New Zealand – believed that the inquiry panel may be drawn to interventions similar to those undertaken in the GB energy retail market.
The client asked Baringa to provide an overview of past interventions in the GB retail energy market and to draw out key lessons that may be applicable in the context of New Zealand. Ultimately, it wanted to make a submission to the government inquiry panel on the potential effectiveness and unintended consequences of certain interventions and to ensure that the panel relied on a broader set of evidence, including GB experience, in reaching its conclusions.
We produced a comprehensive overview of regulatory interventions in the GB retail energy market since 2008, covering:
- Ofgem’s probe into energy supply markets (2008);
- Ofgem’s Retail Market Review (2010-11);
- CMA’s Energy Market Investigation (2014-16); and
- Ofgem’s work to introduce a price cap on Standard Variable Tariffs (2017-18).
For each intervention, we analysed:
- The context in which they were initiated;
- The approaches followed by the regulators – including details of the analysis undertaken;
- The main finding and remedies; and
- Consequences of the remedies implemented.
As part of our work, we delivered a workshop to the client’s executive board and discussed strategies for limiting distortions to competition in the retail market.
Outcomes and impact
Our work enabled Trustpower to engage with the inquiry panel during the Electricity Price Review, armed with a good understanding of the experience of past interventions in the GB energy retail market and the potential unintended consequences of such interventions. In particular, Trustpower was able to make submissions to the panel and to deploy arguments backed up with evidence from our work.