Energy market update: Upcoming regulatory changes and the impact on customers

Here, Rob Kerr, our Customer Services Director summarises upcoming changes to the business energy market and what they mean in practice for customers

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The business energy market is constantly evolving, and recently we’ve all been grappling with the impacts of the commodity price crisis and unprecedented inflationary rises. There is going to be further fundamental change, due to a set of regulatory changes that have been introduced, or will be introduced over the coming months and years. In this blog I’ll summarise these changes and explain how it will impact customers

The Faster Switching Programme

Back in 2018, Ofgem launched a programme to implement a new reliable, fast, and cost-effective switching process to improve energy consumers’ experience of switching – and to build their confidence in the market. They regulated that from 18th July 2022, suppliers must offer both domestic and non-domestic meter points the opportunity to switch within five working days.

So we’re pleased to announce that in line with Ofgem’s programme to implement easier energy supplier switching, as of July 18th we are able to deliver an even faster, two working day switching service for our partners and customers.

We are very supportive of these changes as it should reduce a key barrier to switch for customers and improve customer experience, making switching a more hassle-free process. In the past the switching experience could be confusing and time consuming for customers, so these changes should have a real impact in the market.

If you’d like to find out more, please visit our FAQ page.

Ofgem’s Strategic Micro-business Review

In 2019, the UK’s energy regulator Ofgem launched a strategic review of the micro-business market to better understand and address the issues faced by microbusinesses in the energy market.

What is a micro-business?

Micro business customers (MBCs) are defined by Ofgem as having fewer than 10 employees: having an annual turnover or balance sheet no greater than €2 million and / or using no more than 100,000 kWh of electricity or 293,000 kWh of gas per year. In effect they are a group of customers that require more protection than other businesses as they purchase energy in a similar way, and with a similar level of knowledge to residential customers.

Their findings and the measures they will introduce to help MBCs engage with the energy market were announced in March 2022, and cover areas including signing up to new contracts, communications with service providers and supplier switching.

As a result of the review the key changes being made are as follows:

Broker commission – Many busy businesses use brokers to help them compare the market and find a better deal on their energy. During the review, Ofgem found that there was a risk that customers weren’t always aware that a broker was receiving a commission from a supplier, and if so how much.

To address this, Ofgem decided to put in place legislation to ensure that, from 1st October, suppliers must always be clear about the commission they are receiving from brokers  and provide this in written format to the customer.

Removal of need to provide notification to switch – Ofgem have also banned suppliers from requiring microbusinesses to provide notice of their intent to switch from 1st October. The thinking behind this was that it removes a potential barrier to switch and reduces the risk of customers falling onto out of contract rates for a period of time.

The Ombudsman Services Alternative Dispute Resolution Scheme – Brokers that work with microbusinesses will also have to be registered with the Ombudsman Services Alternative Dispute Resolution Scheme by 1st December, which will help resolve disputes between energy suppliers/brokers and their customers. This independent, impartial service will consider both the rules and regulations and what is fair and reasonable. Ofgem believe that this will provide a more streamlined route to solving disputes between brokers and customers.

We believe that these changes will have a positive impact on the market, providing customers with more information to make informed choices on which supplier to use and whether to use a broker.

What is TotalEnergies Gas & Power doing?

As of 27th June – well ahead of the 1st October deadline – we’re pleased to announce that we’ve updated our MBC contracts and terms and conditions to include the level of broker commission that customers will be paying. We view this as an important step in providing MBCs with the information they need to make informed decisions. We’ll also be stating in contracts when a commission has been paid for all customers.

Market-wide Half-Hourly Settlement (MHHS)

Finally,  MHHS – is one of the biggest changes to energy markets since the late 1990s, which aims to base all electricity market trading on actual half-hourly demand and generation data.

Implementation of electricity settlement reform marks a first for the industry, with Ofgem placing responsibility on the energy industry to deliver the programme.

Currently, suppliers largely estimate a consumer’s electricity use based on average customer consumption patterns, which means it can be difficult for a supplier to purchase or generate the correct amount of electricity needed to meet demand. The growth in use of smart meters that can record and share consumption information every half-hour means suppliers can use this for settlement (the reconciliation of differences between a supplier’s contractual purchases of electricity and the demand of its customers) and help them forecast demand.

Ofgem predicts that market-wide half-hourly settlement (MHHS) will, ‘bring net benefits for consumers in Britain of between £1.6bn and £4.5bn over the period 2021-2045.’ This is a big step forward toward helping the UK’s ambitious target of Net Zero by 2050, as the MHHS programme will contribute to a more cost-effective electricity system whilst encouraging more flexible use of energy.

As an advocate of better understanding consumption data to help support net zero, being able to review current consumption will also help customers understand where they can save energy, which is particularly important with the current market volatility.

Summary

The energy sector has seen unprecedented pressure in the last 12 months, with prices rising and geopolitical tension further exacerbating already increasing wholesale costs.

These market reforms will bring further changes to the industry but should lead to it performing better for customers. Faster switching and the removal of the need to provide notification will make switching easier and provide a more seamless experience. Market wide half hourly settlement should lead to a more efficient electricity system that should benefit all stakeholders in the market.

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