Ofgem has teased “fundamental reforms” to the energy supplier hub model after concluding it is “not fit for purpose in the long term”.
The industry regulator has announced its decision following nearly nine months of consultation with the industry, having first raised concerns of its future in November last year.
Having surveyed evidence submitted by industry stakeholders, Ofgem has now said there is a strong case to consider fundamental reforms to the existing supplier hub model as the energy sector in general undergoes a wider transition.
In particular, Ofgem said there was growing potential for innovation in technology and business models to transform and improve consumer experiences, but these innovations were being hindered by existing supplier obligations and red tape.
It also raised concerns that rules imposing responsibilities on suppliers under licensing conditions were too complex, creating unnecessary difficulties for new entrants to gain a licence.
In an open letter to stakeholders, sent yesterday by Ofgem’s deputy director for consumers and markets Neil Barnes, the regulator said it lacked confidence in the current supplier hub model to fully benefit from innovation, digitisation and competition enabled by the energy transition, and that it was concerned the current model lacked the ability to ensure emerging risks were managed effectively.
While little detail of the reforms was included in the letter – Ofgem itself stressed the work is still early stage – the regulator did stress any reforms must unlock competition and innovation, and that simply adapting the current model may not go far enough.
As a result, Barnes warned there could be “significant lead times” before an alternative system is in place.
Ofgem will now work to assess and redesign the retail energy market, looking specifically at how unbundling current license conditions could stimulate innovation and competition in the sector.
Further thought regarding how system cost mechanisms could enable different business models will be incorporated into this body of work.
More detail regarding Ofgem’s thoughts on the matter is to be made available in the coming weeks.
