Retail Reimagined: How Regional Energy Boards Could Deliver a Fair and Flexible Energy System

Key Points

Since privatisation, energy supplier switching has needed constant regulatory intervention to protect consumers — a free market in energy retail supply has never durably emerged. Instead, we have a heavily regulated, “broken and illusory market”. Retaining supplier switching when we need a rapid and universal energy transition may be creating more problems than it solves.
We can accelerate investment in our homes' efficiency and add smart clean technologies much faster if we create a permanent relationship between consumer and supplier. Meanwhile the prospects of Smart Local Energy Systems (SLES) to optimise local grids could be transformed by a stable relationship with a single local energy retailer.
The liberalised retail market should be replaced by Regional Energy Boards (REBs), akin to the Area Boards of the twentieth century. Taking advantage of economies of scope and reducing transaction costs, these boards would coordinate home, heat and travel decarbonisation.
Consumers would automatically be placed onto the most appropriate tariff to immediately enjoy the benefits of clean energy investments and would no longer have to compete with other, better capitalised and more engaged consumers.
Fixed REBs would also be better suited to administering a greater range of proposed social policies aimed at tackling energy poverty — including innovative social tariffs and linked home efficiency improvements.
REBs could be set up within this parliament and would not involve significant capital expenditure.

Summary

It is hard to see how privatisation of retail energy has resulted in anything other than a broken and illusory market.^[1]

The retail energy market, where we go to switch supplier, is not working as hoped. Moving to a system of Regional Energy Boards (REBs), each of whom supplies all customers in a given area, would accelerate energy efficiency improvements in homes, simplify support for fuel poor families, and give everyone access to the benefits of a flexible, clean energy system.

We have seen Regional Energy Boards before. Less than 40 years ago everyone’s energy billing came from regional public suppliers, with these boards delivering the pace and scale of change which is needed again today.^[2] We propose a new series of Regional Energy Boards to become the “retail” energy supplier for everyone in each region, named at the top of everybody’s bills.

Where are we now?

Right now, our ability to “switch” our energy supplier — the capital-light entity that purchases electricity from generators to sell to consumers — has five problems.

[.num-list][.num-list-num]1[.num-list-num][.num-list-text]A retail market built around engaged consumers cannot function when so many are disengaged from switching: Consumers don’t want to be constantly engaged hence the market needs constant regulatory intervention.[.num-list-text][.num-list]

[.num-list][.num-list-num]2[.num-list-num][.num-list-text]We are trying to solve fuel poverty within the energy market: this is not how markets work. In a market, those who have more get more, and trying to bend the rules because we are not willing to let people go without energy does not work. [.num-list-text][.num-list]

[.num-list][.num-list-num]3[.num-list-num][.num-list-text]We have split the organisations responsible for decarbonising homes: we are trying to deliver smart clean energy through retailers and energy efficiency schemes through local governments. This stops us creating whole-home solutions. [.num-list-text][.num-list]

[.num-list][.num-list-num]4[.num-list-num][.num-list-text]Competition means competing against each other: wealthier more engaged homes will always outcompete poorer homes to benefit first from clean and smart energy technologies, a competitive retail energy market makes this problem worse.[.num-list-text][.num-list]

[.num-list][.num-list-num]5[.num-list-num][.num-list-text]The current retail energy market does not support local energy: National retail models do not support local energy schemes, impacting economic development and flexible local systems.[.num-list-text][.num-list]

Great Britain was one of the first countries to enable householders to choose their electricity and gas provider on an open market. Supplier competition was supposed to benefit consumers and drive innovation. This has not happened, instead we have a created a heavily regulated set of corporate utilities who administer a complex system of consumer switching for no discernible benefit.

How would Regional Energy Boards solve it?

This report is concerned with how end-customers’ relationship with the energy sector is organised. It does not address terms on which generators sell electricity in the national wholesale market or bilaterally “over the counter”, but a move to REBs is compatible both with the wholesale market status quo and with the various reforms that have proposed, including a single buyer option. This report focuses on five benefits of moving to publicly owned REBs:

Fairness: a Regional Energy Board supplying everyone in the region can design and deliver tariffs suited to different household incomes and needs.

Flexibility: publicly owned Regional Energy Boards can deliver a flexible system by directly managing all assets in an area instead of relying on consumer engagement.

Fabric improvement: regional Energy Boards complement an area-based approach to home energy retrofit joined up with the Warm Homes Plan.

Fast action: establishing Regional Energy Boards can be fast and relatively cheap. It can be deployed in this parliament.

First mover: because Regional Energy Boards are fast to set up, they can respond quickly to public opinion that a wider privatisation and markets experiment with Britain’s national infrastructure has failed. Regional Energy Boards can be delivered, setting a blueprint for positive progress in public ownership.

These five benefits flip 40 years of assumptions about how to deliver public benefit in an energy system. Instead of more competition and more markets, REBs can leverage economies of scope by coordinating heat and transport electrification, making homes warmer and bills lower and more predictable.

Footnotes

[1] Stonehaven, “Reinventing Retail Energy: Making the energy retail market fit for the next generation”, Stonehaven Global, 2023.

[2] Stathis Arapostathis, Scott Laczay and Peter Pearson, “Steering the ‘C-Day’: Insights from the rapid, planned transition of the UK’s natural gas conversion programme”, Environmental Innovation and Societal Transitions, 2019, vol. 32, pp.122–139.