A full investigation is to be held into the UK’s energy market in a bid to “rebuild” consumer trust, it has been announced.
Regulator Ofgem said the Competition and Markets Authority (CMA) probe should ensure “once and for all” that competition works effectively.
The investigation, expected to take around 18 months, will look at the relationship between the supply businesses and generation arms of the Big Six energy firms.
It will also study the Big Six’s profits, as well as any barriers to entering the market.
“Now is the right time to refer the energy market to the CMA for the benefit of consumers,” said Ofgem chief executive Dermot Nolan.
“There is near-unanimous support for a referral and the CMA investigation offers an important opportunity to clear the air. This will help rebuild consumer trust and confidence in the energy market as well as provide the certainty investors have called for.
“The energy market is also going to change rapidly over the next few years with the roll-out of smart meters, the Government’s electricity market reforms, and closer integration with European energy markets.
“A CMA investigation should ensure there are no barriers to stop effective competition bearing down on prices and delivering the benefits of these changes to consumers.”
The CMA will begin its investigation immediately and is likely to publish final decisions by the end of 2015.
“This is a major step towards ensuring that the UK’s energy market really does work for consumers and springs from the first annual competition assessment which I asked Ofgem and the CMA to undertake,” said Energy Secretary Ed Davey.
“Having a full energy market investigation with real teeth is something that the last government failed to do time and time again.
“Everyone should give their full support to this independent investigation. While it is under way we’re not slowing down the reforms that are giving people a better deal on their energy, including £50 taken off average household bills, the number of smaller energy suppliers almost trebling since 2010, faster and easier switching and simpler tariffs and bills.”
The CMA can decide which features of the market to focus on in its investigation and use its powers to address any structural and behavioural issues that would undermine competition.
Ofgem said it would expect the CMA to look at the relationship between the supply businesses and generation arms of the six largest suppliers; barriers to entry and expansion for suppliers; the profitability of the six largest suppliers; whether or not there is sufficient competition between the large energy suppliers; the trend of suppliers consistently setting higher prices for consumers who have not switched, and low consumer engagement that contributes to weak competitive pressure in the market.
