The regulator has given industry players including suppliers & consumer protection bodies until 11 June to comment on its proposals to re-introduce so-called ‘acquisition-only tariffs’.

The consultation follows Ofgem’s  recent measures taken to protect consumers – including via a series of rising or falling caps guiding retail tariffs – from rampaging inflation in energy prices. These have been caused by the world’s emergence from Covid lockdowns, and by the neo-fascist Putin’s rapacious aggression since 2022 towards Ukraine.

So-called ‘acquisition-only’ tariffs, available only to new accounts and not to existing customers, have been banned by Ofgem since April 2022, in an effort to stabilise prices in unstable, post-Covid markets. The ban was first extended until March last year, and then until March 2024.

At the end of February, Ofgem announced it would use its existing powers to extend the ban for a further thirteen months, hinting the latest extension would be the last. At the same time, the regulator said it would sound out industry opinion on whether to remove the ban as early as this October, assuming its retail price caps remain in force.  The alternative is to leave the ban in place until March next year.

Permitting suppliers to re-launch aggressive customer-recruiting tariffs this autumn, is flagged in the consultation as Ofgem’s preference.  An early lift will yield, the body expects will a faster return to competition between suppliers on both price and service factors,

The proposals set out Ofgem’s evaluations of each scenario’s impact on efficient competition in retail energy.

Early response from participants included an argument for retention from Citizens’ Advice, the government’s statutory and independent advisor on fuel poverty.

“Keeping the ban in place is a no-brainer“, Gillian Cooper, CA’s energy director commented.  “It prevents suppliers from locking loyal customers out of their cheapest deals.

“Ofgem must resist pressure to scrap it and ensure suppliers are proactively keeping customers up to date about their cheapest deals.

Removing the ban would unfairly hit older and disabled consumers the hardest, said the CA spokesperson, as they are less likely to switch to a new supplier.

“The ban also protects millions of people with energy debt, whose suppliers can block them from switching, as it means they don’t have to stay on the most expensive tariffs pushing them even further into the red.

At Britain’s biggest supplier Octopus Energy, director of regulation Rachel Fletcher agreed.

 “Allowing suppliers to block their best deals from loyal customers would be a return to the ‘Wild West’ of the energy industry”, she said.

“The loyalty penalty was a key reason 30 energy companies went bust, and ended up adding billions of pounds on to energy bills. Ofgem was right to ban these unsustainable Del Boy tactics, and it would be crazy to bring them back now”, Fletcher went on.

“Instead we need a more transparent, fairer market where suppliers are forced to compete based on innovation, customer service and efficiency. We need lower prices for everyone, not just the few.”

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Analysis contained in the respected consultancy’s report ‘Race to net zero: Rebuilding Investor confidence in the UK’ highlights the impact of subsidy and policy schemes worldwide, such as the US’s Inflation Reduction Act (IRA) and the EU’s Green Deal Industrial Plan (GDIP). Both schemes, offering steady support to renewables generators, look set to give both blocs a competitive edge over the UK.

The US has witnessed a surge of investment in green projects following the introduction of the IRA, Data analysed by Cornwall Insight quantifies big financial incentives totalling $369bn for Net Zero technologies and infrastructure over the decade to 2032.

With a limited global pool of renewable investment, this could cause significant damage to the UK’s net zero plans, especially with challenges like rising inflation, supply chain disruptions, and labour shortages already hindering investment.

Figure 1: US investment in renewable energy in the first 60 weeks since the passage of the IRA

Source: American Clean Power

The UK government has announced short-term changes to its renewable investment incentives, in response to the underwhelming outcome of the fifth Allocation Round (AR5) of its Contracts for Difference (CfD) scheme.  Securing only 3.5GW of new capacity earlier this year against 11GW in the previous round, AR5 plumbed record low levels of renewable investment. Concerns over the low probable returns their funds will yield are accepted as one of the core reasons for low developer enthusiasm.

With the sixth Allocation Round due next year, the government has responded with changes. By raising Administrative Strike Prices (ASPs) – the maximum Strike Price which a technology can achieve – the government hopes to regain interest and competition in the scheme.

Figure 2: ASPs for AR6 and AR5 (in 2012 money) and percentage change from AR5 to AR6

Source: GOV.uk

Despite these adjustments, uncertainties persist regarding long-term reforms and the suitability of the CfD.

Britain’s government is actively exploring reform options through the Review of Electricity Market Arrangements (REMA) to create enduring market structures for a fully decarbonised and cost-effective electricity system by 2035.

Also under imminent Whitehall review are features of future CfD rounds.  Separate pots defined more tightly around specific technology types are under consideration, such as seen with offshore wind in AR6 and the inclusion of non-price factors in the CfD scheme, with the proposed introduction of Sustainable Industry Rewards (SIRs) in AR7, AR8, and AR9.

Cornwall research analyst Jamie Maule observed: “The UK’s position as an attractive destination for renewable investment is at risk of slipping, with the potential for significant setbacks in achieving net zero targets.

“Once a trailblazer in global renewable energy investment, the success of the Contracts for Difference (CfD) scheme is now challenged by escalating capital costs, low administrative strike prices, and intense global competition. While short-term incentives play a role, the enduring incentives in the US and the EU threaten to divert funds away from the UK.

“Right now, the UK is certainly not a lost cause for investors“, Maule went on.

“But it must act clearly and decisively if it is to rebuild investor confidence and maintain progress towards net zero. Timely government policies and proactive decisions are crucial. Waiting for events, like the lack of offshore wind bids in the last CfD allocation round, is a luxury the UK can ill afford.”

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The data-driven applications must facilitate progress towards net zero local energy systems whilst improving people’s lives, by combining energy data with data from other sectors. The outputs should benefit the users of local energy systems and provide scalable commercial opportunities to the funded organisation.

MEDApps is a Small Business Research Initiative (SBRI) competition funded by Innovate UK, which is a part of UK Research and Innovation (UKRI). The competition is sponsored by BEIS and Ofgem and is part of our wider cross-departmental programme Modernising Energy Data.

This competition builds on the competition we launched together last year, called Modernising Energy Data Access (MEDA).

How to apply

The competition will award a share of £750,000 for phase 1 and closes for entry on 18th November 2020 at 11:00am.

You can find details and how to apply on the event website. You can also watch the launch event briefing webinar.

The LEDI project

The Local Energy Data Innovation (LEDI) project carried out research that has informed the MEDApps competition. LEDI was led by Regen on behalf of UKRI and the Energy Systems Catapult. This project explored how open data enables greater innovation in local energy systems. The work was carried out from July to September 2020.

Regen identified ways in which data can be used to better:

• provide advice for people who are considering home energy investments
• support developers of renewable generation to identify where to build
• provide services that facilitate bill reductions for vulnerable members of society
• address constraint management on the energy network
• select heating assets for new building developments
• respond to energy supply and demand needs by using energy more flexibly.

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