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UK Energy Reforms Could Stifle Growth

  • Ofgem has pushed through a flurry of reforms in the UK’s energy sector.
  • The energy watchdog has faced heavy criticism over its handling of the energy crisis.
  • One of the country’s energy suppliers says the regulator is “overcompensating” for its failures in its attempts to handle the crisis.

Ofgem’s flurry of reforms to the energy sector could stop new ideas from entering the market and improving outcomes for customers, warned the boss of challenger supplier Good Energy.

Chief executive Nigel Pocklington feared the watchdog is “overcompensating” following heavy criticism from charities such as Citizens Advice and parliamentary committees over its handling of the energy crisis, which has seen 30 suppliers collapse in the past 18 months.

This includes the collapse of Bulb Energy into de-facto nationalisation for over a year, which the Office for Budget Responsibility has calculated at £6,5bn – the biggest state bailout since RBS in 2008.

He told City A.M: “There is a real risk that in reacting to lax regulation, we do things that return the energy supply market to an oligopoly, which is bad for innovation and bad for customers.”

Pocklington argued that Ofgem were “trying to show they are a tough regulator,” but in doing so were “generating headlines without engaging properly.”

This would include making it harder for niche suppliers to provide unique offerings to customers.

In particular, the energy boss criticised Ofgem’s latest compliance report on the energy sector, where the watchdog revealed Good Energy had “severe weaknesses” in its handling of vulnerable customers alongside four other firms.

Pocklington challenged Ofgem’s verdict and was critical of the regulator’s handling of reviews across the energy market.

He slammed the review’s process as “difficult to follow”, and felt it benefitted bigger firms with large compliance teams who had members of staff with experience of working at Ofgem and “understood the language” of reviews.

This meant they could “say what’s needed” even if the firm’s actual outcomes for customers “aren’t great.”

He said: “We’ve always heavily focused on outcomes and we’re obviously having to improve our documentation, which is what these reviews call out. We’ve never been called out for a poor outcome.”

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Pocklington also felt Ofgem “rushed to be public,” a situation he described as “regrettable.”

He explained: “There is a risk that as Ofgem attempts to demonstrate publicly that it is a very active regulator that all you’re doing is favouring very large suppliers who have big regulatory and compliance teams and a revolving door between them and Ofgem.”

Utilita boss Bill Bullen also recently criticised Ofgem’s latest reviews of the market, having also been criticised harshly by the watchdog.

He told City A.M. last week he feared the market was coalescing around established players, which were benefitting from Ofgem’s reforms.

It is not the first time Good Energy have been in Ofgem’s crosshairs.

The latest gloomy report card follows an earlier review this summer where the watchdog declared that Good Energy had “moderate to severe” weaknesses with its payment processes for customers.

Good Energy also agreed last month to refund owners of renewable generators over £450,000 after imposing unauthorised administrative charges on them.

Ofgem has been approached for comment.

Ofgem scrambles to clean up energy market

Ofgem has unveiled multiple reforms following the energy crisis, with households and businesses facing record energy bills this winter averaging £2,500 per year – despite vast subsidies included in support packages.

This includes rolling out quarterly price caps, fit and proper person rules, financial stress tests, and temporary market stabilisation charges to prevent firm’s being penalised for hedging.

Most recently, it announced capital adequacy requirements and ringfencing rules for renewable obligation payments – although it stopped short of ringfencing requirements for customer credit balances.

Pocklington was broadly in favour of these rules, particularly as the focus was shifting from unrealistic price competition which was powered by insufficient hedging strategies.

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He said: “I think it is perfectly legitimate for a regulator to be very strong on hedging requirements, particularly hedging, as compared with the scale of your business because the thing that went wrong with Bulb is it got too big too quickly.

Pocklington favoured an energy market focused on the proposition of a company such as its source of energy and efficiency as a company.

However, he stressed this had to regulated in a way that “doesn’t prevent new and innovative ideas coming through.”

With Octopus set to acquire Bulb, the UK is on course for another Big Six with a 90 percent share of the energy market.

Meanwhile, challenger suppliers are struggling again, with So Energy scrambling to secure £50m in funding ahead of winter.

Good Energy is currently looking to pivot from its focus on green energy to a green lifestyle it wants its customers to embrace.

The company popularised and develop the concept of feed-in-tarrifs, with customers buying energy from small, licensed suppliers hooking their renewable energy sources into the grid.

These customers make up around two-thirds of its 276,000 customer base.

Good Energy’s share price performance has been rocky through the market crisis (Source: London Stock Exchange)

However, with green energy becoming increasingly cheaper, Good Energy is now looking to back future-facing technologies such as heat pumps and electric vehicles.

Earlier today, the FTSE AIM All-Share company announced it has snapped up off-the shelf heat pump installer Igloo Works in a deal worth £1.75m.

It has also continued to invest in the EV smart phone service, Zap Map, backing its £9m fundraise with Fleetcor earlier this year with a £1m commitment.

Commenting on the future, Pocklington said: “We do see Good Energy’s future as a provider of energy services to help people go green themselves. We think those are markets offer our shareholders growth and, in the long run, more attractive economic characteristics than a basic supply business does.”

By CityAM

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