May 19th, 2017

Improving consumer engagement with the energy market

7 minute read

by Molly Hickman

 

The Conservative manifesto for the 2017 general election includes an energy price cap for the single variable tariff. While the aim is to “protect energy customers from unacceptable rises” there are worries that such a policy would lead to reduced competition and pricing issues in the long run. The rationale for the proposed price cap may be questionable, but it has at least brought the topic of energy back into the news; a lack of consumer engagement is a significant and ongoing issue within the sector, affecting the bills people pay and the amount of energy they use.

Being ‘engaged’ with energy can arguably be measured in a range of ways, but I will focus specifically on engagement with the energy market, demonstrated by consumers’ likelihood of switching tariffs or suppliers. When I recently read figures showing that nine million UK households have been on a standard variable tariff with one of the Big Six providers for more than three years, to me this demonstrated a distinct lack of consumer engagement. So, what can be done to ‘switch people on’ to energy?

 

Smart young things?

I was further alarmed to learn that in a survey for the Energy Saving Trust only 7% of under-35s said that they fully understood their energy bills. 40% did not know that their energy was measured in Kilowatt hours. As energy companies increasingly move service administration onto online and ‘smart’ platforms, it seems perplexing that the generation most in touch with their smart devices would be the least engaged with their energy bills.

After all, they should be the ones happiest to use online price comparison sites, now probably the most frequently used means of switching suppliers. They would also be the likeliest users of mandatory Quick Response (QR) barcodes on energy bills. Customers can scan their bills using smart phones or tablets to feed their data into price comparison sites, allowing them to make more informed choices about switching suppliers. uSwitch, for example, has an energy switching app which boasts of ‘impartial results’ and ‘personalised help’ when making a change.

Younger people may also be the ones readiest to adopt the ‘all online’ services that companies are moving towards. Bristol-based Ovo Energy was the first supplier to offer customers using prepayment meters an online top-up service. As well as the added practicality, customers can benefit from receiving daily usage data and text alerts when their credit is running low. It would be interesting to know whether customers using this service feel more in touch with, and in control of, their energy costs.

 

Studying electricity at Baltimore Night School

Light work: can we engage young people with energy issues? Photo: U.S. NARA (Public Domain), via Wikimedia Commons

 

The UK also has an ambitious target to fit every home with a smart meter by 2020. With their ability to provide consumers with real-time data on energy usage, and thus facilitate greater understanding of how everyday activities link to energy bills, smart meters have undeniable potential. Yet, despite there being more smart meters in homes than ever before, Ofgem’s 2016 consumer engagement research shows that there was only a minimal increase in engagement from 2014 to 2016.

 

Electric barriers

There are several reasons why young people in particular might be especially disengaged from energy issues.  First, the vast majority under-35s rent their property, meaning they are less likely to take part in what is seen as more ‘long-term’ investments, such as switching suppliers, fixing onto tariffs or having smart meter installations. It also appears that renters are often unaware that it’s their right, not that of a landlord or letting agency, to take these actions. Furthermore, young people’s lives are no less busy than others’, and it’s possible that energy bills simply aren’t seen as a priority.

Unfortunately, price comparison sites have not alleviated the issue of tariff confusion. With the complexities of various discounts and ‘teaser rates’, people still baulk at the complexity of finding the cheapest deal. At the end of February 2017 there were approximately 200 different energy tariffs in the domestic market, an intimidatingly wide range for the average consumer. In my experience working as an energy advisor, everyday consumers generally lack energy literacy. With misplaced fears of having their supply cut off or being tricked into paying more for their energy, many consumers are put off switching.

This links to the issue of public mistrust of energy suppliers, who have long been associated with bewildering tariffs, perplexing bills and poor customer service. In the latest in a line of such cases, Scottish Power was fined £18m last year for treating customers unfairly.  Public unease is, unfortunately, sometimes justified, and deters them from engaging.

It’s also clear that new technologies, despite having great potential, are not yet fully integrated into energy systems and therefore not facilitating the increase in engagement we may hope for. One major issue is that smart meters are not yet standardised across suppliers, meaning that although ‘smart’ consumers are not prevented from switching suppliers, they may be put off doing so by fear of losing their smart meter functionality – leading to reduced engagement with the market. Smart meters will eventually be brought into the DCC network, making them compatible, but this remains a problem for the time being.

Research by Smart Energy GB found that eight out of ten people with smart meters installed had taken energy saving steps as a result. This research is certainly encouraging, but, as we are in the early days of the smart meter roll out, the findings are still small-scale. We must also distinguish between engagement with energy efficiency and with the market; a consumer may take energy saving steps at home, but remain reluctant to switch suppliers or tariffs. Further research is needed, particularly into whether consumer interest in smart meters is short term, as is often the case with new gadgets, or part of a longer term behavioural change which could lead to increased engagement with energy. Linking back to the importance of demographics, with some 6 million older people having never used the internet, it would also be interesting to know to what extent this age group is likely to be engaged.

 

Finding the right switch

Despite the obvious barriers to energy engagement, I believe there is the potential for consumers to be more ‘switched on’ in the future. This April, the Which? Consumer Agenda showed that consumers are increasingly concerned about how the energy market is working for them, citing energy prices as one of the top three issues they believe the government should prioritise.

There are now a record number of independent companies coming into the industry with a fresh approach. Ovo Energy and Bristol Energy, to take examples local to Eunomia’s Bristol office, have both focused heavily on customer care and the idea that energy needs to become more transparent and accessible to encourage engagement. It also appears that increasing numbers of consumers are choosing to switch to independent suppliers.

Increasing consumer engagement with the energy market needs to be a priority in implementing the UK’s climate strategy. There would be real value, for example, in social research into what exactly motivates consumers – young and old, homeowners and renters – regarding energy engagement. Considering the environmental and financial gains at stake, it would be inspiring to see someone like Ofgem leading research that would help focus government policy in this way.

One of the co-founders of the newest independent energy company ‘Pure Planet’ has called for innovation to be the way forward rather than ‘headline grabbing price caps’, and I certainly support this idea. Price caps, while well-intentioned, mask the larger issue. If we are to create a clearer and fairer market that consumers will see financial and environmental reasons to engage with, we need to better understand people’s motivations – and then enable them to act through improved customer service and better integration of technology.

 

Molly Hickman

 

Molly Hickman

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