Effective Paths for Consumer Empowerment and Protection in Retail Energy Markets

Maria Ioannidou

doi:10.1007/s10603-018-9372-5

Abstract

Consumer empowerment and protection are frequently discussed in contemporary energy policy debates. The process of consumer empowerment through information and consumer education has great potential, yet consumer switching as the concomitant outcome of this process remains low. Additional protection for vulnerable consumers is called for. This article is centred on the path to achieving consumer empowerment and protection. In particular, it stresses that empowerment should be viewed as a long-term process. Regulators should not focus on the mere outcome of switching and adopt remedies aimed at changing consumer behaviour in the short term. The discussion highlights how attempts to protect vulnerable consumers through an ancillary application of competition law distort the competitive process and should be avoided. Personal vulnerabilities, such as low income, can be better tackled with targeted social policy measures, whereas instances of vulnerabilities pertaining to the market context, such as difficulties in assessing different energy offers, are better phased out through the market mechanism.

Highlights

Consumer empowerment and protection are frequently discussed in contemporary energy policy debates
The European Commission (EC) emphasizes the importance of full consumer protection and catering for vulnerable consumers and energy poverty, and whereas this falls under the remit of individual Member States, the EC accepts that common minimum criteria may be considered (EC 2015b)
Different approaches to empowerment in psychology, marketing and behavioural economics suggest that the focus should be on the process of improving consumer skills and addressing consumers’ often inherent inability to participate as actors in retail energy markets

Summary

Assessing the EU Framework

Despite efforts to increase consumer empowerment in the Third Energy Package, consumers remain insufficiently informed and fail to actively participate in energy markets (EC 2016j). The measures proposed in the new Commission’s package focus on better provision of information through more accurate billing information, access to price comparison websites and smart meters, facilitating switching, and incentivising self-generation. The Commission’ proposals aim to enhance the process of empowerment through the provision of information and even if switching levels (as the desired outcome) are not high; evidence suggests that the situation is improving (ACER/CEER 2016b). This situation supports the focus on empowerment as a long-term process. The way different Member States deal with such market-based vulnerabilities may have an adverse impact on the competitive process as the UK example suggests and as such they should steer away from employing competition law tools with a regulatory mindset

Consumer Empowerment as a Process

The Nature of Retail Energy Markets

Findings

Conclusion