Probably the biggest energy meltdown in history…
In the last hour, the unthinkable has happened. Energy suppliers have withdrawn from every single Price Comparison Website in Britain. As at 14:18 on 16 September there are 3 left — So Energy, ESB Energy and Outfox the Market. But this is likely to change any minute. Some PCWs are now down to just one. And ALL of them are quoting me more money than the notoriously expensive SVT (Standard Variable Tariff).
Interesting that, despite entering the same usage and current tariff on all PCW services, and despite the cheapest available tariff being the same, my estimated increased costs vary greatly — from £406-£782 more p.a. which is a massive discrepancy, let alone up to 70% more than my current spend.
Why has this happened?
Has this got anything to do with 4 energy suppliers having gone bust in the last week? That the cost of those may reach £1 billion, which will be ultimately be passed back onto customer bills (on top of the price hikes above)? That one energy supplier alone had to pay almost £1m in a day because customers were using more energy than expected, is this true? You say Russia and China are involved? Yes to all of these.
This is my view on where things have gone wrong…
Problem 1: Covid-19
Like many things, it all started to go wrong with Covid-19… Saying that, it’s not entirely Covid-19’s fault as we have seen energy suppliers go bust before and fail to hedge properly. But as described above, we are at a totally new level of crisis in energy pricing than we have ever seen before. The start was lockdown. All of a sudden domestic energy demand increased by about 40%. That is a lot of extra demand that suppliers had not predicted and bought ahead to cater for. And despite us (supposedly) being past any lockdowns, home usage remains unpredictable (apparently, not all of us want to go back into work).
Problem 2: Poor data
Most PCWs and Third Party Intermediary (TPI)/ broker services use estimated data. They assume that 100% of households and 99% of all businesses are each treated as having 1 of just 2 demand profiles. Regardless of location, size, type, or condition. So not only have energy suppliers not been able to predict changes in usage due to Covid-19, they didn’t even have the right baseline to start with. And they still don’t.
Problem 3: Someone always wins in a crisis
We are extraordinarily reliant on Russia for gas. And Russia sells to all countries, including China. Russia has put up its prices and China has bought most of the gas supplies, leaving a lot less in the market for anyone else. Another smart investment by the Chinese, which will give them an edge in competing against the West, on top of all other other advantages…
Problem 4: Regulation
The price cap has throttled energy suppliers from being able to price their own products to ensure they achieve and maintain an effective business model. Energy is a competitive market and should be allowed to operate as one. Aside from the problems of interference, regulation also can never keep up with anything dynamic. The price caps get reviewed twice a year but you can imagine how much happens between those reviews…
So what do we do from here?
Solution 1: It always come back to data
We have to fix access to data. Energy suppliers need to know what customers (and energy demand) they’re onboarding to properly hedge. They must be able to hedge in advance to protect themselves from price volatility and countries playing games to ensure they can offer affordable energy to households. After all, it is always the customer that ends up paying for ALL of this. Energy suppliers can’t get this data as historical energy demand will sit with a competitor energy supplier or in a data silo they need customer consent to access and the customer is disengaged…
Energy suppliers also need to be looking at pre and post Covid-19 profiles. I have not heard of anyone, other than Perswitch, talking about these. But it seems pretty basic to be aware of the two and to be tracking the differences between them…
If energy suppliers get data, they can hedge properly, they can price properly, so that prices can come back down, and they can relist on PCWs. And we achieve a functioning competitive market once again.
Solution 2: Reducing our reliance on gas and international sources of fuel
This is a great reminder that we are pushing for the electrification of heat and more investment into more renewable energy generation in Britain. Let’s push on!
Solution 3: Shop smart
Consumers, we do play a role in this. We need greater awareness and transparency between the PCWs and TPIs who form part of the problem in using estimated data again and again, and those that are breaking the cycle with actual data! Choose the service you use wisely.
