Communication-Based Approach for Promoting Energy Consumer Switching: Some Evidence from Ofgem’s Database Trials in the United Kingdom

Muyi Yang,Liming Zhu,Adam Berry,Xunpeng Shi,Kristy Mamaril,Yuanying Chi

doi:10.3390/en13195179

Abstract

Prompted by rising concern about weak consumer switching and the practice of price discrimination, over the period of 2016–2019, the Office of Gas and Electricity Markets (Ofgem) undertook a series of trials on communication-based interventions to encourage consumer switching in the United Kingdom. The main purpose of this paper is to assess the experience of these Ofgem trials with a view to draw some lessons for policy makers. The analytical framework adopted for this purpose is informed by existing literature on the barriers for consumer switching. The results of the analysis suggest that while the Ofgem trials have made positive impacts on consumer switching, these impacts varied significantly across the trials, suggesting that some interventions were more effective than others. Further, the overall impacts of the Ofgem trials were moderate, as around 70% of participants did not switch suppliers even in the most impactful trial. This reflects a general lack of understanding in the literature about the behaviour-influencing factors, their impacts, and their context-connects. By implication, the difficulty in stimulating consumer switching, as demonstrated by the Ofgem trials, suggests that weak consumer switching and the practice of price discrimination may simply reflect significant competition, rather than a lack of it, especially if retail margins are not greater than the competitive level. In this case, the communication-based intervention aimed at encouraging consumer switching may lead to further price discrimination, especially for the most vulnerable consumers, who are more likely to stay with their incumbent suppliers.

Highlights

Electricity market reforms have been underway worldwide for nearly three decades now.The majority of developed countries and more than 70 countries have undertaken steps to reform their electricity industries [1]
Even in the United Kingdom (UK), where the retail market is widely considered as competitive as compared with most other countries, there seems to be a growing concern in recent years about weak consumer switching and the practice of price discrimination [13]
The main purpose of this paper is to review the experience of the Ofgem trials in the UK, with a view to draw some lessons that policy makers and planners may like to consider while designing their own programs for reforming retail energy markets

Summary

Introduction

Electricity market reforms have been underway worldwide for nearly three decades now.The majority of developed countries and more than 70 countries have undertaken steps to reform their electricity industries [1]. Even in the United Kingdom (UK), where the retail market is widely considered as competitive as compared with most other countries, there seems to be a growing concern in recent years about weak consumer switching and the practice of price discrimination (i.e., charging higher prices for inactive consumer and lower prices for active consumers) [13]. This concern, together with rising electricity prices, prompted the introduction of a range of policy instruments in various countries for promoting consumer switching. The indirect approach focuses on redressing market-related factors (such as tariff complexity, and high information cost) that affect the behaviour of consumer switching through, for example, tariff simplification, provision of standardised information on energy offers and bills, and introduction of a tariff comparison website [14]

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