Ever wondered how the energy market works? Want to know who wears the trousers when it comes to keeping the energy market in check and how it all affects your fuel supply and bills?
If you’re feeling curious about your gas and electricity supply and want to know the ins and outs on the market, here’s everything you need to know.
The energy market is made up of more than 60 UK companies that supply your home or business with gas and electricity. They’re the people you pay your bill to.
These companies buy their gas and electricity from a chain of parties that generate fuel (make it), transmit it (move it over long distance, sort of like a motorway) and distribute it (get it into your home area), all of this is collectively known as the energy network.
Ever heard of Ofgem (The Office of Gas and Electricity Markets)? It’s the government body that’s in charge of making sure everyone involved in the energy market follows the rules. Created to help consumers get a fair deal, Ofgem monitors the behaviour of energy suppliers, pulls them up if they do anything wrong and champions fair competition by controlling the prices that transmission and distribution companies are allowed to charge. Plus, it regulates the National Grid, the network of power lines and stations that distribute our electricity.
Ofgem is the middleman that stands between you and the UK’s energy suppliers with the goal of getting you a fairer deal.
In the old days British Gas provided almost all the gas and electricity in the UK. Because there weren’t many suppliers that were competing against each other for customers, a regulator like Ofgem wasn’t required. Since then, the government has opened up the playing field to more energy companies to increase competition and give consumers a wider range of deals to choose from.
Ofgem is the watchdog that oversees these suppliers but it doesn’t regulate their prices. It only limits what distribution and transmission companies can charge, because there are so few of them that there’s virtually no competition – monopolies like this are bad news for customers because there are no rivals to stop these companies from charging high prices, which is why Ofgem steps in to curb them.
The rates suppliers charge aren’t regulated because they are part of a competitive market – you can choose your supplier who can then choose where they buy their energy.
Ofgem isn’t funded by taxpayers; it’s financed through a licence fee levied on the energy industry. Any money it makes through imposing fines is paid to the Treasury rather than used as funding, therefore it works independently of energy suppliers.
Ofgem’s general responsibilities are to (1) protect consumers, (2) encourage market competition and to (3) monitor suppliers.
Overseeing and developing competition between energy companies means the regulator guarantees a selection of energy tariffs that are fairer and offer better value for money.
According to Ofgem, it’s specific aims are to:
The regulator also works with suppliers to improve their performance in terms of handling customer complaints, providing support for vulnerable consumers and fulfilling social obligations.
Ofgem is in charge of a voluntary code of practice that energy comparison services follow called The Confidence Code. The aim of these rules is to ensure tariff information is presented accurately in a format that’s easy for domestic consumers to understand and compare. All price estimates have to be transparent and consistent across the board so users can quickly compare and contrast the available deals rather than get bogged down with the tricky small print.
Ofgem doesn’t work alone. It’s governed by the Gas and Electricity Market Authority (GEMA), who’s main purpose is to ensure consumers get good value and service from the energy market.
Firstly, regulating the deals on the market creates a wider variety of affordable tariffs to choose from. That means you can find an energy deal that best suits your lifestyle and your pocket rather than sticking to a uniform deal that everyone has to sign up to. In theory you should be able to find and compare tariffs easily, thanks to the Confidence Code, and make a saving on your energy bills by signing up to a competitive deal.
Secondly, you have the peace of mind that even the smallest of energy companies on comparison sites has been properly licensed and monitored by Ofgem – there’s no risk of being cheated by a supplier because they’re regularly checked up on. And if you’re unhappy with your deal or the service you’ve been provided, Ofgem will ensure your supplier responds to your complaint properly. It can also fine suppliers for mis-selling tariffs and treating consumers unfairly.
Thirdly, Ofgem ensures energy companies live up to their social and environmental responsibilities too. For example, if you are on a ‘Feed In’ tariff and have solar panels or a wind turbine, your supplier must pay you a fee for generating your own renewable energy. Ofgem makes sure your supplier delivers on this payment promise.
Also, if you’re on a low income you might be eligible to receive funding to make your home more energy efficient under the Energy Company Obligation (ECO), a government energy efficiency scheme to help reduce carbon emissions and tackle fuel poverty.
Your supplier should give you support to make greener upgrades to your property and in turn reduce your fuel bill over the long term. Proper supervision of the industry by a reliable regulator is vital to ensuring you’re made aware of these funding options and can benefit from them.