Introducing competition into the energy marketplace

jamesmorgan

Whilst there is considerable debate about how to introduce better competition into the energy marketplace, much of it seems to miss the point that gas/electricity supply is essentially low margin commoditized business. The current business model seems to be to sign up to one supplier (often for a prolonged period to tie in fixed rates). This has similarities to the mobile phone market, but here you have highly differentiated products often sold at high margin. A much better comparison would be the car fuel market. In that market you buy a fixed amount of product (limited by your fuel tank) from the cheapest supplier. When you run out, you buy some more from whoever is cheapest at that time (with very little brand loyalty).

It wouldn't be that difficult to mirror this for the gas/electricity market. It would require some changes to the meters to make them into true 'smart' meters, but once done you could easily envisage a system whereby you buy a fixed amount of gas/electric from whoever was cheapest at the time. Once this is used up you repeat the process. When you purchase the energy the supplier would give you a simple code to type into your meter (along with your security pin). The meter would then monitor your usage and warn you when getting low so that you could search the internet for the cheapest supplier and buy some more. If you move house, the meter could give you a code equal to your unused energy that you could use at your next house. This whole system would remove the need for meter readings, complex billing systems etc and would make it very easy for new entrants to the enter the market.

You could buy any amount of energy you wanted. Some people may just buy a week at a time (similar to current pre-payment meters), others may buy months or even years in advance. The bigger purchases would typically have a discounted rate but would be limited to those with cash reserves. However, it is fairly easy to envisage financial products appearing to support this area (similar to mortgages). If you think that energy prices are likely to go up more than current interest rates you could buy, for example, 10 years worth of energy using a fixed rate 'mortgage style' product at a fixed rate of say 4% for the 10 years. This energy mortgage uses the unused fuel as the asset. If you default on payments the bank simply recovers the unused energy from your account.

I am really looking for our politicians to take some leadership in this debate and come up with creative ideas. Instead they seem to be wallowing around trying to work out how much profit the energy companies are making. If you introduce a proper free market, the market will ensure that the suppliers don't make excessive profits.

g3no70

My economics tutor says there is no market in the energy sector. It's nt as if we can grow our own is it?

NFP is the way forward but imagine the shareholders! Then again the stakeholder has had enough!!