Multiple-supplier model could support growth in local renewables

A research paper on local energy supply models by members of the UCL Energy Institute suggests that moving away from the single-supplier model and allowing consumers to take on additional contracts with local suppliers could support growth of local renewable energy.

To set the report in context, the authors flagged the trend towards decentralised renewable electricity generation and how effective management at the district network level can reduce constraints on the grid. While the current supplier hub model, and associated regulations, has made retail innovation difficult, the authors noted that Ofgem is already questioning whether it is still suitable in today’s energy landscape.

The multiple-supplier model could work in different ways, perhaps one where a consumer chooses to buy electricity from a local generation asset, with their listed supplier providing for any residual demand. Or perhaps it could allow suppliers to specialise in one area of electricity demand, such as EV charging or managing appliances capable of demand-side response.  While this solution would provide increased choice and flexibility, citizens groups and larger incumbent suppliers have reportedly expressed concern that the additional complexity, as well as the costs involved in reforming regulatory codes, would counteract the expected benefits.

The main aim of the study was to understand whether consumers would be willing to engage with local energy suppliers in a multiple-supplier model. The research indicated that there might have been biases at play in participant’s decision making, including the fact that people act differently when making hypothetical decisions compared to real ones. As such, the authors recommended further research in this regard.

From the outset, the authors acknowledged that there were several existing barriers to consumers’ adopting multiple-supplier models. Principally these are disengagement, inconvenience inhibiting switching, bias towards staying with the default option and the fact that new alternatives need to be explicitly recommended by a trusted source. Looking at appetite to risk suggested that loss-averse consumers were more likely to stick with, or revert to, the default supply arrangement, but the discussion suggested that this was not a robust conclusion as the sample may have included participants that reverted to a default arrangement because they resented action being taken on their behalf, or other reasons.

Overall, the report indicated two main conclusions, firstly that there is strong interest in adding local energy supply on to existing supply arrangements, with participants “around one and a half times more likely to engage with local energy suppliers in a multiple-supplier model than the current single supplier model.” Secondly, in certain circumstances, consumers will choose to opt-in (or not opt-out) of a multiple-supplier arrangement, despite current research suggesting that people are more likely to choose to stay with the ‘default’ supply arrangement.

The authors stated that the willingness to engage with a multiple-supplier model was increased when the letter was received from the default energy supplier. This was not intended to form part of the analysis, so further research is recommended. But it does suggest that engagement through existing/incumbent suppliers could be integral in building acceptance of new supplier models in the future. Equally, further research is required into how price and billing arrangements would impact consumer choices.

This research has strong similarities with the BSC code modification P379 that is currently undergoing cost-benefit assessment. The modification proposes that in order to reduce barriers to competition, multiple suppliers should be able to compete for the supply or export of electricity through a single meter without needing to establish an agreement between all of the suppliers involved. The final cost-benefit report is expected to be presented to the BSC panel in March 2021.

Report accessed through Science Direct