UK energy policy seems to actually relish a disaster and this year the press including people who should really know better like the Economist and the BBC, are acting as cheerleaders for doom in promoting the risible idea of electricity shortages in 2016. I predict that as reality intrudes, we'll see those stories disappear, but the basic narrative of ever rising power prices is based on anecdotal, but not fact based, assumptions, of constrained gas and rising environmental costs that will echo for years. One reason it will is that there is a lot of money to be made in promoting energy as a problem. Energy consultants, especially the 3PIs (Third Party Introducers) and switching sites, have a huge vested interest in making customers fearful so that they take a longer term price which is inevitably a higher price. The up to 10% commission 3PIs receive from suppliers is the underlying incentive for them push the "energy risk" narrative, even when that story no longer applies.
3PIs have unwitting, or is that witless, enablers within Ofgem, who seem to promote unhealthy behaviour that actually undermines the UK economy. Ofgem feels perhaps that promoting risks,even where they are unlikely or impossible makes them more indispensable. Is this for their own short term needs? Ofgem is in fact the largest energy consultancy in the UK. It promotes the doubtful benefits of competition while having a sacred belief in the value of "choice" even where the choice is fairly empty, often only laying the framework for consumer confusion which costs far more than the choice saves. Suppliers are a stranger bunch. Some I+C suppliers are smart, progressive and provide good value. Other suppliers have mixed feeling about 3PIs where they both shovel millions of pounds their way while trying to escape doing so. 3PIs are basically outsourced marketing arms, with most suppliers politely having mixed feelings about the sums they spend with the 3PIs. Customer capture is difficult, with the utility market being very sticky. Suppliers need to be either very expensive or very incompetent to lose business. But it's also hard to gain new business.The other reality is that most retail arms are happy with the business they have. It costs money to find new business and the existing business is rarely profitable enough to fund seeking any.
Let's think about "competition". Does choice and value in a market like petrol/gasoline? Of course it doesn't. Petrol prices are within a pence per liter in any one area. The vast majority of drivers make the "choice" of where to fill up based on need or convenience.
At least in a petrol station, pricing is transparent, unlike the confusopoly pricing of the big six domestic energy firms, where tiered rates in randomly metered arcane units of measurement mean a true choice providing true value simply isn't provided.
In domestic supply, pay by monthly direct debit and the standard rate between the six is essentially the same. It's the same for the the same reasons as petrol, in that they are priced against a wholesale market.
In the UK, only the largest end-users can access wholesale prices because of the lack of monthly meter reads for almost everyone. The level at which you can use index prices is falling, but not far enough. The difference of day ahead index prices compared to long term prices is stunning, with 70% savings common over the past year. In fact there has only been one month,January 2009,in the past eighteen where the day ahead index price was not lower than any price available in advance of the month of use.
For example for November 2009 things looked like this:
A fixed price is basically the projected monthly volume multiplied by the monthly price. November is roughly 10% of an annual heating load. If one fixed a price in September 2008 for one year, November was £1 a therm. The lowest possible price one could pay for November in advance was on 32.05 in early September. But the wholesale index price for System Average Price has been below 25 this month.
In English: Consultants cannot beat the default price, the price of doing nothing. So what are people paying them for?
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