Technological change and innovation in UK energy market – how might it be impacted by the price cap?

Philip O’Donnell; Which?

Background

With the publication of the Domestic Gas & Electricity (Tariff Cap) Bill, the UK Government is committed to introducing a temporary price cap on Standard Variable Tariffs (SVTs) and other default tariffs. There are a wide range of views about what this could mean for both consumers and energy companies.

As the largest consumer organisation in the UK, Which? is concerned that the energy market is not delivering good outcomes for the majority of consumers. We understand the reasoning behind the introduction of a price cap in the energy market, but are concerned about the potential unintended consequences which may result from its implementation.

There is a great deal of anticipation – within Government, Ofgem and industry – around the potential for technological change to transform the energy market in the near future. We believe that facilitating innovation, within a truly competitive market framework, can help to realise the best outcomes for consumers. The longer-term objective for the price cap must be a successful transition to an energy market where consumers fully benefit from innovation and technological progress in the sector.

Overview

Therefore, we have commissioned external research to provide an assessment of the key innovations and technological changes within the energy sector and how these may be impacted by the price cap, both now and over the next decade. This research obviously ties very closely to the central theme of the conference (‘Consumers at the heart of the energy system’), as well as the second theme ‘New technologies and services’. Therefore, we think it would make a very suitable presentation topic at this year’s conference.

We propose to present the findings of this paper at the conference, which we will use to inform our response to the planned Ofgem consultation on implementation of the price cap. In addition, we are currently planning some related work, around the interaction of smart-enabled technology and digitisation of consumer data, which will hope to have some preliminary results from to help supplement this above topic.

Methodology

We have engaged Cornwall Insights to undertake this work, which will be taking place over the next couple of months. This will involve:

an extensive review of the current regulatory framework, and how this supports and incentivises innovation throughout the energy sector;

primary and secondary research to assess current and/or planned innovations and technological changes in the energy market, focusing on those most likely to deliver the greatest benefits to consumers, and

a comparative analysis of other sectors and countries, to gather evidence on the interaction between price cap regulation and innovation.