5 options for the future of the UK’s energy market

Theresa May European Council meeting, 22-23 June 2017

Reform of the energy market is clearly needed, but which route should we go down? Here are five possible strategies.

On Thursday, the government announced its plans for a price cap in the energy markets.

The government’s statement said:

“The Bill would require Ofgem to consult and impose the cap as soon as practicable after the legislation is passed. It will be an absolute cap, and in setting it Ofgem must have regard to the need to: protect customers, create incentives for suppliers to improve efficiency, enable effective competition for domestic supply contracts, maintain incentives for customers to switch and ensure efficient suppliers are able to finance their activities.”

Energy price rises are clearly a big issue facing the country, but what options are there for the future of the market?

1. The status-quo

One option is for the situation to be left as it is. The current market is dominated by the big six, and it could be argued for the current state of affairs to continue, and that the emphasis should be on the consumers to switch energy providers to make savings when the time is right.

2. A price-cap

This is the outcome supported by the current government and could go some way to saving consumers money in the short-run. But what about the long-term? Under the plans the cap would be removed by 2023 at the very latest. What would stop energy companies from significantly raising their prices at the end of the period?

3. A state-run company to compete with private firms

This is the option that was proposed by the SNP at the party’s conference. In a move clearly designed to see off the rise in support for Labour in Scotland, Nicola Sturgeon presented a range of ideas that shifted her party decisively to the left. One of the party’s proposals was to create a state-controlled Scottish energy firm to compete with private companies. If such a body were to be orientated towards saving consumers money, it could make the market more competitive and force other companies not to hike their prices. But is it a viable option?

4. De-centralised nationalisation

This model was recently proposed by Labour at the party’s autumn conference, as reported by the Independent. Such an outcome would result in a nationalised system, with different regions having autonomy, and would benefit from allowing different regions to try alternative strategies and learn from each other.

5. A nationalised monopoly

One option is for the government to nationalise the energy companies and bring them under one centralised roof – a state-run monopoly. Such an outcome would benefit from economies of scale.