Fairness in Retail Energy Markets? Evidence from the UK

18 Oct 2018

Concern about fairness in the retail energy market is clear from media headlines and the passing of legislation to impose a ‘wide’ price cap in the retail energy market in 2018. ‘Fairness in Retail Energy Markets? Evidence from the UK’ provides extensive evidence from a range of disciplines to inform this important debate. This report does not attempt to define what constitutes fair or unfair, since this ultimately rests in the eye of the beholder. Nevertheless, its message is clear: development of the retail energy market in the UK can only be understood by recognising the political economy around questions of distribution and fairness.

A multi-disciplinary perspective

The publication reports research conducted at the Centre for Competition Policy, University of East Anglia, as part of the UK Energy Research Centre’s programme. The research is multi-disciplinary, drawing together researchers from a range of disciplines: economists, legal scholars, human geographers and a policy analyst. This range of specialisms provides a rare opportunity to consider fairness and retail energy markets in the round. The research team is both unusually broad and academically independent. The report’s five main chapters present findings from different disciplines and methodologies to stimulate consideration of evidence which is rarely encountered together. In assembling this evidence the researchers are grateful to our partners Broadland Housing Association, Cornwall Energy and Ofgem, as well as to the Parliamentary Archive and all our interviewees.

The report presents findings under five broad themes: (i) how long-term outcomes contextualise the retail energy market’s political salience; (ii) how distributional objectives feed into institutions; (iii) the multi-faceted nature of engagement with energy; (iv) the detailed experiences of those at risk of FP; and (v) how data/statistics can be improved.

Key issues highlighted

Together the evidence raises fundamental issues for the future governance of the market.  The traditional focus of economics on efficiency has never claimed that markets are effective tools for delivering equitable outcomes, and the traditional framework of ‘pure’ economic regulation is challenged by the focus on fairness. Can the market ever escape political intervention when energy prices rise substantially? This question is particularly relevant when key affordability support policies – the Winter Fuel Payment and the initial Fuel Poverty Strategy – were introduced as energy was approaching its most affordable level over a 30-year time horizon.

Energy’s political salience has meant that the independence of the market regulator, Ofgem, has evolved in a way not originally envisioned. Government has increased the number and complexity of Ofgem’s statutory duties. The resulting ambiguity regarding how to prioritise the regulator’s different duties has led to increased government-regulator communication and the potential for government to exert pressure on the regulator through less formal channels.

We present evidence indicating that there are problems with implementing the main frame used to address energy fairness in the UK, namely ‘fuel poverty’. We suggest that the approach to analysing fuel poverty, and the associated policymaking, would benefit from a change of direction, towards a focus on the directly observable real-world phenomena which underpin this complex problem, rather than on the official fuel poverty statistics. Such an approach would help to recognise that energy efficiency interventions are unlikely to solve all the energy affordability challenges facing households.

Download the report

Read the associated press release here.