Improving consumer knowledge in the energy industry

As a liberal, I am not in the business of banning many things. I subscribe to the idea that knowledge is power, and that by providing consumers with more information, positive outcomes can be achieved. For a market to be competitive, consumers must have information, and we know that competitive markets improve outcomes across the board.

In the food industry this has already happened. If you look on a packet of crisps, it will show you how many calories there are, how much salt as well as a whole host of other nutritional information. According to this report, the US is going to start labelling GMO foods with a smiley face. 

Because of this, consumers are able to make choices and we are seeing a downward trend in calorie consumption. However, we don’t do this in a lot of other markets, including the energy industry.

With the energy industry, it is difficult for consumers to get information about the product that they are buying. Consumers are using comparison sites, which help to an extent, but unless each utility company is researched, it is tricky.

This is where policy makers can come in, and it could act as a nudge mechanism for consumers.

YouGov surveyed 2,000 UK consumers and found that consumers would pay on average up to 10 per cent more for a sustainable product. The same report, which can be found here, found that 40 per cent of consumers already consider the sustainability of the product when they buy.

This is where we can reform the energy industry. Not with price caps like Theresa May and Jeremy Corbyn have put forward, which would only serve to reduce the supply from smaller energy providers. 

Instead, we could compel energy providers to produce some sort of guidance for the consumer regarding the sustainability of the product. Which countries are the main producers of the energy? Is it sustainable? What method of extraction was used to get the energy? That type of thing. 

Consumers are becoming more and more environmentally conscious and it is our responsibility to make transactions easier for consumers. If we can do this, we can make the energy market have far less friction, and the nudge mechanism over time will move more and more people towards sustainable energy to fuel their homes.

The UK already has a fantastic record of lowering emissions, one of the best in the European Union, but there is more to be done. We simply cannot be content just because other countries are doing worse than us. This is an opportunity to address some of the issues within the energy market, as well as help to preserve the environment. It is one that we cannot miss out on.

* Tom Purvis is a member of the Liberal Democrats who works as an Economist at the British Business Bank.

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7 Comments

  • Nonconformistradical 15th May '18 - 9:23am

    “With the energy industry, it is difficult for consumers to get information about the product that they are buying. Consumers are using comparison sites, which help to an extent, but unless each utility company is researched, it is tricky.”

    What are price comparions sites doing with personal data? How do they make money? Commission from suppliers or what? If something like commission then where does their real interest lie?

    Energy suppliers should be obliged to provide comprehensible details (standing charges and rates) for all their tariffs on their websites – so we can all see them and decide for ourselves without involving price comparision sites which tariff is best for our own particular situations

  • William Fowler 15th May '18 - 2:37pm

    Get rid of standing charges and then companies will have just one flat rate, easy to compare – at the moment low energy users are discouraged as they have to pay the standing charge so the effective rate is very high for low energy usage. Ebico have flat rate and no standing charge but they actually work on top of an existing energy company, so layers of profit (they are non-for-profit but still have to pay their expenses).

    It is odd to me, you have the energy producing companies and then the national grid that together account for about fifty percent of the final bill and then you have the cartel energy companies sitting atop this who interface with the public, take meter readers and work out how to extract the max amount of money from people. Are they actually necessary, what about having smart meters that read credit/debit cards with a swipe and distribute the money directly to national grid and the actual energy producing company – a small cost to do this but not fifty percent of the bill! Come on, think really radically and slash the cost of bills!

  • John Marriott 15th May '18 - 6:19pm

    OK, I’m nearly 75 and spent most of my adult life paying the Gas Board to provide me with gas and the electricity company to provide me with electricity. Then the Tories privatised the utilities and, hey, my electricity company now provides me with electricity AND gas in Jurassic Park!

    They’ve recently written to me saying my one year ‘deal’ is about to run out and they are offering me a REDUCED tariff. To get it I needed to contact them, which I did. Well, after about twenty minutes talking to a young gentleman, whose northern accent and clipped way of speaking had me asking “Would you mind repeating that?” every few minutes, especially when he started quoting figures, I was rapidly losing the will to live! Well, the figure quoted in the letter turned out to be a few quid more but still offered a ‘massive’ annual saving of around 50 quid. Could I have shopped around? Possibly; but, quite frankly, I couldn’t be bothered so I said “Yes”.

    Do I enjoy the brave new world of consumer choice? What do you think?

  • William Fowler 16th May '18 - 7:23am

    When the companies were privatized they were forced to decrease prices year on year by a formula imposed upon them so for the first five, ten years consumers were getting a good deal as the companies became more efficient… then something went very wrong and their only limit was making 5 percent return on capital, which just encouraged them to increase prices to increase turnover to make that 5 percent a bigger number. Duh!

  • “They’ve recently written to me saying my one year ‘deal’ is about to run out and they are offering me a REDUCED tariff. “ John Marriott

    I think part of the problem with energy pricing is our lack of understanding of what is being presented. What we have to remember is that the normal price is the standard tariff, which practically all energy companies will throw you on to if you do not have a current ‘deal’. Hence what all the comparison websites and energy company sales base their comparison on, isn’t your current deal, but what you will be paying in the coming year – typically after your current deal has finished. Naturally, very few people actually know the current standard tariffs from their supplier and so get confused as to how it is they will be saving £200~300 per annum, yet be paying more each month than they are currently.

    Knowing your annual energy usage (Kwh) helps greatly in being able to create the spreadsheet that will enable you to get beneath the headline savings figures much loved by price comparison websites and energy company sales reps. In doing this I’ve often found that staying with my existing supplier is a better proposition than switching to the one being flagged as saving £200 pa, and thus avoiding the effort of switching.

    However, if you are confused by today’s energy pricing, the pricing that smart metering enables will be several orders of magnitude more complex, such that it becomes impossible to do a meaningful price comparison, instead we will be in the same situation as we are now when comparing investments: two companies both track the same index, however one may over several years consistently out-perform the other, until key individuals leave…

  • @Nonconformistradical re: price comparison websites
    >How do they make money? Commission from suppliers or what?
    Commission from suppliers.

    >If something like commission then where does their real interest lie?
    Well it depends on the website, the worst will only list those suppliers who pay commission and then offer incentives to encourage you to select the highest commission payers. Others do list all suppliers including those that do not pay commission. There was a good article on MoneySavingExpert complete with links.

    Personally, whilst I use price comparison websites I also use other websites to help determine the levels of commission and incentives being paid. It is troubling when the best renewal deal is via a cashback website to a reseller offering deals with your existing energy provider; but your energy provider won’t offer similar deals when you directly approach them. But then I’ve been here before – in the USA, often walking into the lobby of a hotel/motel and use the dedicated free phone to book a room rather than doing it at the reception desk.

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