Sunday, 13 May 2012

The Big Energy Switch Swindle - Part 2

Last week I posted about The Big Switch, a reverse auction for domestic energy being organised by Which and 38 Degrees.

I have to admit that my prediction was wrong, that suppliers would offer discounts, probably short term in nature and at the expense of other customers. But I was correct that the auction would make little difference for consumers.

The winner was Cooperative Energy which was £6 per year cheaper for the average user than the next lowest tariff, however the tariff is only available to the first 30,000 applicants out of around 280,000 that signed up for the Big Switch. The remainder will be offered the second place tariff, which is from EDF and has been available on the open market for several months. A post on the Which website also indicate that the winning coop tariff is also available on the open market.

I'm sure some consumers who participated in the big switch will see significant savings but they could have got them at any time. In fact, the Big Switch has delivered no new benefits to consumers.

The Energy and Climate Change Secretary, Edward Davey has been quoted a saying that he wants to see more schemes “enabling consumers to club together in this way to buy their energy, cutting out the hassle of
shopping around and switching and helping households get a better deal for their gas and electricity.” Evidence that he doesn't have a clue and that the government has no intention of intervening in the failing energy market.

At this time there is little information on the winning tariffs, although average standing charges and unit rates have been posted. What has been made clear is that those not paying by direct debit, including those without a bank account will be charged almost an extra £100 per year based on average use and the tariffs don't appear to be open to those with prepayment meters, thus the people suffering the most from high energy prices will not benefit. There are also regional variations in the tariffs, therefore you may have to pay more depending on where you live.

The result isn't really surprising. Energy differs from most commodities in the infrastructure required to deliver it, whether cables or pipes, and measurement of how much is used. For each customer that switches supplier as a result of the big switch, the energy company still has to run credit checks, set up individual accounts, read meters and issue bills giving limited savings to the suppliers from a group switch compared with many individuals. By contrast if your street gets together to bulk buy transportable commodities, such as a truck load of toilet roll our baked beans, the supplier can discount this based on the costs he saves by processing a single large order with a single bill and delivery rather than lots of smaller ones.

One of the big problems with such a powerful group of energy companies, untouchable by consumers, protest groups and government is that they have no real incentive to cut costs for the long term, especially the volatile price of fossil fuels. When investing in new generation they will invest in power stations with greater cost certainty in terms of planning and construction, that is gas power stations which have lower risk during the planning and construction than wind farms or nuclear power stations.  The burden of future uncertainties, such as the price of gas, can be passed on to the consumer with impunity. It follows that the continued dominance of fossil fuels in the energy supply mix is bad for the environment and we, the public, will be left to pick up the cost of mitigating against the effects of climate change.

There are no easy answers to these problem. Schemes like The Big Switch are clearly not the answer. The Regulator and Government are not the answer. The answer lies partly in greater efficiency in the home to lower consumption and hence energy bills, but there are limits to what is achievable.

One method for groups to see real and lasting benefit from collective buying power could be through buying the means to generate their own energy, such as a community wind farm, solar collectors or geothermal heating systems.  This would reduce the dependence on the major energy retailers, putting power literally back into the community.  There are already some good examples of this, mostly from small isolated communities where the benefits of locally generated power is more tangible.

Related Links:
The Big Switch
The Big Switch Ts & Cs

Related Posts:
Energy Market Reform
The Big Energy Switch Swindle

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