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The future of energy retail: Capital vs Innovation

I was fortunate to attend a really interesting senior industry lunch last week where much of the debate was inevitably focused around the current gas crisis and the short and long term implications. It got me thinking.

Where there seems to be no debate, is that the retail market is concentrating back to a small number of players, not many more in number than when we started on privatisation of the market. Those enduring players will all be characterised by scale in customer numbers and deep pockets of available capital- it was ever thus. Recent weeks have proven beyond doubt that smaller suppliers cannot survive without rapid access to deep resources of cash in response to uncontrollable commodity price spikes. Most people, who understand the industry, recognise that this is the fundamental difference between those parties still in the game and those who have exited. Some failed suppliers were without a doubt badly managed, but to label all in this category is unfair and unfounded.

But if deep pockets and scale is a fundamental necessity to survive- What does that mean for the future of competition and innovation?

‘Big is beautiful’ is good for supply market stability. But is it so good for consumer choice, innovation, agility and speed to market for new products and services, in a time, heading towards Net Zero, when these facets have never been more important?

We have successfully ticked off the easy aspects of the energy transition with the shift to renewable power. But again, where there is strong agreement across the board, is in the fact that the next bit will be a lot harder. Wholesale change to consumer behaviour and importantly mass change to domestic homes and the way we insulate, heat and manage energy is a far bigger challenge. And as has been proven by the SMART meter roll out, doing the ‘right’ thing at scale is a hard sell to consumers.

So we need a market that offers consumers genuine choice. Different customer segments will move at different paces, adoption of new solutions and technologies will be taken up based on personal attitudes and relative affordability. The snowball effect will come from many different solutions being offered to the market, some of which will gain traction, and some which will not, and for that we need genuine competition.

Many of the new ideas and technology solutions originate from innovation, entrepreneurial spirit and different perspectives. Let’s be clear, that’s what many of the now failed suppliers were trying to bring to market. Whilst there are pockets of it, and all are trying to do it, do we really believe that the few ‘big’ suppliers are the most innovative and fleet of foot in bringing all the necessary new ideas to market?

So the challenge going forward is how we de-link the challenge of providing commoditised energy supply from a genuinely competitive and dynamic market offering consumers many potential energy solutions. In response, I continue to warm to the theme of a nationalised commodity price with commodity risk being managed centrally. All suppliers could then supply energy without bearing the inherent cost risks. This would enable many smaller and more agile businesses to enter and compete in the market with new solutions and different services.

Fundamentally, as we are seeing now, no organisation, whether supplier or regulator can manage out worldwide commodity risk and the inevitable implications on consumer’s bills. Creating pseudo competition around a commodity price is a fool’s game- so let's make it a standard price.

Many organisations of all sizes have the potential to deliver consumer benefits through solutions which reduce demand, dynamically manage consumption and ultimately reduce costs. We need to create a market where this can be done without having to bear the cash requirements associated with managing commodity risk.

When we come up for air after this period, we need to think very differently about energy retail. The existing model is just not fit for purpose if we have any hope of achieving Net Zero.


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