The energy retail market is at a crossroads. Its shape was established in the early 1990s – private companies competing within a regulated framework to source and supply gas and electricity – and has remained largely unchanged ever since.

Energy suppliers take responsibility for purchasing wholesale electricity and gas, managing the customer interface including billing, meter reading, revenue collection and, more recently, the rollout of smart meters. While some alternative propositions have emerged , the system remains focused on competition on price driven by a focus on switching and facilitated by price comparison websites.

Concerns about the functioning of energy retail markets had been growing over the past decade, driven initially by evidence of mis-selling and low levels of switching, as well as concerns around the limited nature of competition (despite the emergence of major new players such as Ovo and Octopus Energy). Disengaged consumers remained underserved and liable to loyalty penalty. Increasing political focus on energy bills led to greater intervention into the functioning of retail markets and the Competition and Markets Authority (CMA) inquiry – ultimately resulting in the introduction of the energy price cap. Despite innovations emerging to engage consumers more with their energy use, the success of the retail market was measured primarily on switching, with domestic energy consumers regarded as passive users of energy at the periphery, rather than an integral part of an integrated system.

Over the past 12 months unprecedented energy price increases and the collapse of many new entrant energy suppliers with unhedged positions, have left the current model of retail energy competition effectively on life support. The costs of avoiding major disruptions to service for customers have been absorbed by all customers. The crisis has also resulted in major new interventions to ease the cost burden for consumers – with more direct intervention likely (at time of writing). In these conditions of uncertainty, along with political change, a new paradigm of retail competition has yet to emerge.

This report CLEAN ENERGY RETAIL: The Role of Energy Retailers in the Net Zero Transition assesses the challenges and opportunities for how future energy retail companies can support consumers to navigate the net zero energy transition, focusing in particular on the period from 2025 to 2035, including:

• Examining the major changes predicted in the UK energy sector over the coming period and the implication they could have for energy consumers.
• Exploring propositions that future energy retailers might develop to meet their customers’ needs over this period and identifying key strategies necessary to deliver them.
• Setting out wider enabling policy and regulatory changes that could ensure these propositions and strategies can be put in place.

Key points

The next phases of the energy transition will bring far reaching changes in how people experience using energy in their homes and everyday lives. To achieve net zero, a radical shift is needed to deliver clean heat technologies and electric vehicles and make good use of intermittent renewable electricity.

• Energy retailers have a crucial role to play in helping people navigate the low carbon choices they will need to make over the next decade. An enhanced customer focus will be needed to meet diverse needs and ensure protection from new hazards while unlocking opportunities arising from a cleaner, digitalised and more efficient energy system. This mwill require retailers to build consumer trust, to translate complexity into simple consumer friendly offers, and provide holistic products and low carbon services.
• Innovative propositions need to become mainstream to meet the needs of all consumers, including the vulnerable. Valuable propositions will include those which unlock consumer investment in low carbon assets (such as heat pumps), tariff innovation around time of use, type of use and green tariffs (which match consumer’s energy use with the purchase of low carbon energy, or other environmental benefits), and community focused offerings.
• Energy retailers will need to consider new strategies, business models and partnerships, educating customers on their net zero journey, embracing digital developments and boosting skills and capabilities.
• Policy and market arrangements should reward innovation in retail energy services to it accelerate decarbonisation and reduce reliance on imported fossil fuels. These should focus on enabling energy retailers to develop offers which incentivize people to make low carbon choices and become more flexible. Faster rollout of smart meters will be crucial but wider reform is also needed to sharpen wholesale price signals and strengthen green tariff frameworks.
• Outcome-based requirements on householders should be considered to drive positive low carbon behaviour. Policy change is also needed to make low carbon energy simple and easy whilst maintaining trust (e.g. simplifying the customer experience; redefining the roles of energy retailers; improving the way we measure competition; improving data access) and ensuring the transition to clean energy is accessible for all (including updating consumer protection measures and smarter approaches to fuel poverty).
• In the immediate term, bold action will be required by the government to address the current energy crisis and reduce consumer harm. Details of such action is beyond the scope of this report but it must not undermine the longer term aims and recommendations it sets out.