The energy regulator, Ofgem, has announced the launch of a strategic review of the microbusiness energy market.
According to government data, in 2018 there were over five million microbusinesses in the UK. These accounted for a third of employment and 21% of turnover. They also paid a total of £3.5 billion in electricity and gas energy bills. However, despite the size and importance of the sector as a whole, Ofgem is concerned that the energy market is not working as effectively as it should for individual microbusinesses. For instance, Ofgem believes that some microbusinesses are struggling to engage with the market and are consequently paying more for their energy than they should. The regulator reports that microbusinesses who do not engage in the market pay a higher “loyalty penalty” than disengaged domestic consumers.
Ofgem hopes that the planned strategic review will enable it to better understand and address the issues faced by microbusinesses.
Recognition that there are difficulties in the microbusiness energy market is not new.
In addition to the announcement of the new review, May also saw Ofgem publish an Evaluation of the Effectiveness of the CMA Price Transparency Remedy.
The Transparency Remedy was introduced in 2017 by the Competition and Markets Authority. At the time, the CMA ordered energy suppliers to provide clear prices to microbusiness customers through a quotation tool on their websites or through price comparison websites. The CMA believed that this would have the effect of helping microbusinesses to engage in the market.
In its evaluation report, Ofgem has concluded that while the remedy has improved the level of price information that is available to microbusinesses, it has had a limited impact on microbusiness engagement levels and has failed to address some of the fundamental problems in the market. Ofgem states that it will gather further evidence through its strategic review before publishing an action plan in winter 2019.
An “opening statement” letter describing the planned strategy and giving details of how businesses can contribute can be found at www.ofgem.gov.uk/publications-and-updates.
Last reviewed 14 May 2019