The rules governing the energy retail market must change so that suppliers can move out of the current industry ‘holding pattern’ that constrains innovation and instead deliver on the promise of the energy transition.
That’s according to a new report by Energy UK and BFY Group – Demand better: a smarter, fairer retail market – which calls for a renewed focus on ensuring households and businesses can access the benefits of flexibility services, technology adoption, and dynamic pricing.
The UK has made exceptional progress on decarbonising its electricity generation, but the conflict in the Middle East has once again highlighted the importance of accelerating demand electrification to ensure the country’s energy security and resilience.
Rolling out cleaner sources of heating and transport – from heat pumps and solar panels to battery storage and electric vehicles – will reduce direct reliance on gas, helping to shield households from gas price volatility whilst also contributing to the UK’s energy security.
However, the report argues that customers will only feel the full benefits of the transition if action is taken to improve the operation and investment prospects of the retail energy supply market.
Low carbon technologies and flexible tariffs are already helping customers power their homes and vehicles in a cleaner and more affordable way.
Suppliers are, however, unable to fully invest in and grow these offerings under the current policy and regulatory environment, which fails to recognise and encourage creativity, innovation or ambition and instead places considerable administrative burden on market participants.
At the same time, rising affordability challenges, increasing customer debt and ongoing operational pressures are absorbing resources that would otherwise be used to develop new propositions.
Great Britain’s energy system will be increasingly driven by varied generation and flexible assets. Improved market mechanisms and price signals are necessary to encourage homes and businesses to use energy when it is cheapest and most available. This will require more meaningful price differences between peak and off-peak times to give customers genuine opportunities to lower their bills.
In addition to these signals, making it easier for customers to use energy when it is cheapest and most plentiful is crucial. Flexible retail offers can deliver wider benefits for the whole country, contributing to the £30-£70 billion in customer savings that could be achieved between 2020 and 2050 by hitting national flexibility targets and avoiding unnecessary infrastructure investments.
Dhara Vyas, Chief Executive of Energy UK, said:
“The role of energy suppliers has long been misunderstood and is sorely undervalued. Between them, these businesses have a relationship with nearly every customer in the country. For too long they have been held back from innovating and delivering products and services fit for the twenty-first century.
“That’s why we’re calling for a reset that focuses on making it easier for energy suppliers to invest in developing more tailored offers for customers, so that households and businesses across the country can take advantage of our modern, flexible, clean power system.”
David Watson, Principal at BFY Group, said:
“The retail energy market was designed for commodity supply. By 2030, it needs to enable flexibility at scale, attract long-term investment and support millions of consumers to engage with a very different system. A structural and not incremental transition is what is needed.
“Suppliers are currently operating in a system that works against them. Rising debt, prescriptive regulation and pricing constraints absorb resources that could be building tomorrow’s capabilities. Without reform, the transition will cost consumers more and take longer than it needs to.”
Building the conditions for a better market
To restore innovation, engagement and long-term investment in the retail market, the sector needs to adopt outcomes-based regulation that incentivises those with the skills, creativity and experience needed to deliver benefits for customers.
Licence conditions standing in the way of new and exciting developments should be stripped back to allow innovation to flourish, particularly in delivering flexibility to the wider energy system. Regulation should also be updated to apply to services rather than business types to ensure demand response providers operate on a level playing field with the rest of the market.
It will also be important to consider a price protection framework that is fair, targeted and fit for a modern energy system. The report calls for Ofgem to commit to a multi-year roadmap for the evolution of the price cap, specifying whether protection will narrow, transition to social tariff models, or remain universal, enabling suppliers to plan investment accordingly.
Energy UK and BFY Group recommend ultimately moving to targeted support for those genuinely unable to engage or afford energy, with dynamic tariffs exempt from price cap constraints where consumers opt in with informed consent.
This would encourage customers to engage actively in a competitive market with adequate safeguards against exploitation that will provide better outcomes for both consumers and suppliers.
Without these reforms, the retail market will continue to operate in a holding pattern facing further declining value at the expense of future progress. Reimagined market conditions can unlock the innovation, competitiveness and consumer participation needed for the UK to deliver abundant, affordable clean power for all.
The full report is available now: https://www.energy-uk.org.uk/publications/demand-better-a-smarter-fairer-energy-retail-market/
ENDS
Notes to Editors
About Energy UK
Energy UK is the trade association for the energy industry, representing companies investing billions of pounds to secure our country’s current and future energy needs.
From growing start-ups to major electricity generators, grid and infrastructure developers and energy suppliers, our members are driving change across power, heat, transport and flexibility.
We provide a collective voice for the sector working with governments, regulators, charities and other organisations to provide crucial insight that shapes policy, offers solutions and promotes best practice. Our broad view across the whole system supports evidence-based positions which are not tied to particular technologies, and are focused on delivering strategic benefits for people, businesses and the economy.
We champion initiatives such as our Vulnerability Commitment, which pushes suppliers to go beyond regulation to support customers with additional needs, and TIDE, the industry’s drive for greater inclusion and diversity. Through our Young Energy Professionals Forum, we support the development of future leaders. We are equally committed to our team and are proud to be recognised as a ‘Gold’ Investors in People employer.
About BFY Group
BFY Group is a specialist consultancy focused on the energy and utilities sector, bringing together hands-on industry experience with consulting expertise. We work with energy retailers, networks, and other market participants to shape strategy, respond to regulatory change, and deliver practical improvements in performance.
Our work covers policy, commercial strategy, and operational transformation, supporting organisations to adapt to a rapidly changing market while improving outcomes for customers.
