Wholesale energy prices and future energy retail market policy
Written ministerial statement by Secretary of State for Business, Energy and Industrial Strategy Kwasi Kwarteng (HCWS497).
The last few months have seen unprecedented increases in the levels and volatility of wholesale gas prices across the globe. This has been due to multiple international factors in supply and demand and has led to a shift in the size and shape of the energy retail market, with a significantly higher number of supplier exits than would normally be expected during this period.
Three principles have consistently guided the government’s response. Customers, and particularly vulnerable customers, should be protected. We will not be bailing out failed companies with poor business models. And we must not return to the cosy oligopoly of the past.
The energy retail market is the main interface between consumers and the energy system, and its stability and effectiveness is vital. Ofgem have today set out in their Open letter to energy suppliers the further steps they are taking to protect consumers, provide greater certainty for investors, and strengthen the resilience of the sector.
Future of the energy retail market
Earlier this year, the government published an Energy retail market strategy for the 2020s. This strategy set out our vision for a market which enables net zero and where:
- consumers should receive appropriate levels of protection, pay a fair price for their energy, and be able to easily engage with the market to exercise choice
- energy companies should invest in innovative products and services to unlock the benefits of low-carbon technologies
- consumer choice and active market competition contribute towards a lowest-cost flexible energy system, which gives the right price signals and drives the uptake of low-carbon products and services
This vision remains the right one. However, we also need to take account of the lessons from recent months to ensure that the energy retail market is resilient, sustainable, and continues to protect consumers as we move to a net zero energy system.
The government therefore intends to review these lessons as part of a wider refresh of the current Energy Retail Market Strategy, with the aim of publishing an updated strategy as soon as possible, once the market has stabilised. We are inviting views on how future government policy can best achieve the vision set out earlier this year, and how the lessons from recent market developments should inform this. We are particularly interested in:
- how the retail market can help achieve the best outcomes for consumers, no matter how they engage
- how energy companies can help drive the private investment needed to achieve Net Zero
- how the retail market, its underpinning regulatory framework and the energy price cap, may need to evolve to enable a lowest-cost, flexible and resilient energy system that continues to protect consumers
Please share your views (deadline 16 January 2022)
To enable this refresh of our overall retail market strategy, and to help stabilise the market in the short-term, the government is therefore pausing policy development on the recent public consultation on opt-in and testing opt-out switching. The government is grateful to all those who took the time to respond to this consultation, and to the other recent government calls for evidence on third-party intermediaries and on the transparency of carbon content in energy products. The government will set out next steps on these issues and publish a summary of responses in due course.
This is a key opportunity to help shape the future of the sector and I would encourage every interested party to engage in this process.
The energy price cap
The energy price cap has shielded millions of customers from price volatility in wholesale markets. As announced earlier this year, the government remains committed to seeking to legislate to extend the energy price cap beyond the existing longstop date of December 2023, when parliamentary time allows, subject to conditions for effective competition not being in place. We continue to reflect on the price cap’s effectiveness and will take this into account in the design of any future cap.
Fairness and affordability
The government remains committed to publishing a ‘Fairness and affordability call for evidence’ on the options for energy levies and obligations to help rebalance electricity and gas prices and to support green choices, with a view to taking decisions in 2022.