Lessons from the First Mover The UK was one of the forerunners of market liberalisation, with full liberalisation introduced in 1999. This transformation meant consumers across the UK were able to shop around for the retail tariff which best suited their needs, with the overall ecosystem monitored by the Office of Gas and Electricity Markets (Ofgem).
Evidence from the UK shows that liberalised retail markets can provide cost savings for consumers willing to switch suppliers. However, it also reveals that lack of customer engagement and a complex tariff environment can cause consumers to lose out or end up on a worse tariff due to confusion about prices.
Being one of the first movers meant that the UK could serve as a case study from which other nations could adopt key learnings. One of the challenges from the UK’s transition was the translation of consumer awareness into consumer action in the retail market. A study in the year 2000 revealed that while 89% of customers were aware of the option to switch suppliers, just 5% completed a switch within the first year. That situation has evolved, with 2018 figures showing that 41% of consumers engaged in the energy market in 2018, either comparing tariffs or actively switching suppliers. The latest consumer report reveals that:
58% of consumers are confident that they are on the best deal for their household
81% of those who switched suppliers in the previous year think they are paying less for their energy
73% trust suppliers to treat consumers fairly
65% trust suppliers to charge a fair price
76% are satisfied with their overall service received from a supplier
A Staged Approach Japan took a staged approach to market liberalisation, focusing on ensuring the right infrastructure was in place by transitioning large industry players and commercial customers in their initial steps towards a full and open retail market. The latest step in 2016 saw 85,000,000 energy users joining a new consumer marketplace valued at a staggering US$73 billion dollars.
The Japanese retail market transition means consumers can now access a broad menu of tariffs and suppliers providing new options such as variable tariff rates or electricity supplied from renewable energy sources. This added a level of consumer opportunity that supported potential cost savings alongside the chance to make personal choices about how the electricity they consumed was generated.
Japan’s energy marketplace valued at a staggering US$73 billion dollars
Initial retail market liberalisation resulted in roughly 150 new entrants gaining retail licences within the energy ecosystem, and full liberalisation resulted in almost 400 new players within the market. An estimated 13% of households have changed their electricity suppliers, reinforcing the angle that market liberalisation does not lead to immediate wholesale switching by customers.
Grass may not be greener on the other side… Singapore is one of the most recent nations to embrace a liberal retail market model for residential customers. Over 1.4 million residential and business consumers were accorded the option to switch electricity suppliers in the latest step towards liberalisation, which took place in November 2018. This follows years of progress towards a liberal market which began back in 2001, with gradual market liberalisation opening up for more commercial consumers in recent years.
5 electricity retailers dropped out of the market since liberalisation began
New retail electricity suppliers now offer a range of options for consumers, with over 20 suppliers offering tariffs for commercial customers, and 13 offering residential tariffs as of June of this year. Despite the potential for cost savings, uptake remains somewhat cautious. According to Singapore’s Energy Market Authority (EMA), between 18-25% of consumers within the first two geographical zones in the nationwide launch switched their suppliers by the end of January 2019.
One of the reasons consumers are hesitant to make the switch is the fear of switching to a new provider only for that provider to then abruptly exit the market soon after. This isn’t a baseless fear – at least 5 licensed retail providers dropped out of the electricity retail market since liberalisation began for commercial consumers. While continuous supply is guaranteed by the government through Singapore Power, the inconvenience and worry caused by such a move is holding back some consumers. This has also resulted in a situation where consumers switch providers to a market newcomer, only to revert to the original supplier at a later date.