Ofgem is considering “fundamental” reform of the energy supply market model in which suppliers as the central agents, or middlemen, could eventually become “redundant”, according to CEO Dermot Nolan.
The regulator wants ideas on how it might go about making new rules to enable other parties, such as technology companies, to deliver new services to customers in a bid to improve competition.
Nolan repeatedly referred to peer-to-peer energy platforms in a blog post explaining the call for evidence.
Such platforms would enable companies or households to buy energy direct from one another or from generators. But they are currently hamstrung by a system which places a heavy licencing burden on market entrants. Meanwhile, suppliers tend to have a significant say on how the market works, and which rules are put in place.
At present, suppliers buy energy from generators, add in policy and network costs, and bill customers, acting as middlemen for a number of parties that require a cut of the overall bill. They also have to balance their trading position and comply with a number of rules and requirements.
Ofgem calls that the ‘supplier hub’ model and it has been in place since privatisation. However, Nolan said the emergence of a smarter and more flexible energy system enables an alternative approach.
Peer-to-peer trading platforms, and other models, said Nolan “could make the role of conventional suppliers as the ‘middleman’ between customers and the energy system less relevant – or even redundant”.
However, the challenge facing technology companies today revolves around requiring a supply licence or having to partner with a supplier to fulfil the many requirements that, currently, only a licenced entity is allowed to do.
The regulator says it hasn’t yet made up its mind whether structural change is required, but wants to hear from businesses and other stakeholders about how it could make new market rules that enable greater innovation and competition within energy supply.
Ofgem wants views by 22 December and said it will set out its thinking by spring.
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