UK: reduced regulation will boost competition from small residential energy market entrants

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21 June 2011, Gas, Electricity

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Following the privatization and opening up of the UK's energy market, a number of (mostly foreign-owned) new entrants took over and divided up the residential energy market between them. According to the energy minister Charles Hendry, this has resulted in "over 99% of people getting their energy from just six big companies," namely British Gas, EDF Energy, E.ON, nPower, Scottish and Southern Energy, and Scottish Power.

At the same time, no less than 11 new entrants are currently vying for the remaining 1% of the UK's roughly 33 million residential customers with innovative marketing and operation models. To date, their progress toward encroaching on the big six's market share has been hampered by administrative burdens and associated costs.

To counter this, the government plans to raise the customer number threshold for mandatory participation in both the Carbon Emissions Reduction Target (CERT) and the Community Energy Saving Programme (CESP) from the current 50,000 to 250,000. While the big six suppliers will remain unaffected by this change, it will make a huge difference to smaller new entrants, which have been burdened with the additional costs of having to promote energy efficiency.

Improving energy efficiency doubtlessly remains an important aspect of achieving the government's political goals of energy security, affordability, and sustainability, and in this respect, small suppliers should continue to be involved in these schemes as best as they can. However, making the participation of companies with fewer than 250,000 customers voluntary will enable them to decide how they can best grow their market shares, while at the same time reducing their customers' energy consumption. Ultimately, the greater the level of competition in the market, the better off consumers will be, in terms of both lower energy prices and offers to save energy.

Source: Datamonitor

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