Adam Scorer: Structure of market snuffs out any real competition

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The Independent Online

Does this feel like the most competitive energy market in the world to you? Well, apparently not. According to a YouGov poll last month, 89 per cent of us feel we are being ripped off by energy companies.

It is easy to see why people would believe that. Since 2003, gas bills have increased by 86 per cent and electricity bills by 64 per cent. Annual energy bills of £1,000 are commonplace. Energy companies will point to the volatile wholesale price of gas. They maintain that, in the face of spiralling global commodity costs, they are doing nothing more than sharing the pain with their customers.

It seems undeniable that powerful European gas producers treat Britain's open energy market as a Treasure Island to be plundered for cheap gas when the price is low and then fleeced with punitive prices when demand grows.

However, not all problems are across the Channel. The British energy market has gone from one where energy companies felt the hot breath of competitors on their necks to one where they exist in a comfortable relationship with each other.

The number of active suppliers has dropped from 20 to six. The big six suppliers have re-established interests in electricity generation and gas production. This degree of "vertical integration" coupled with long-term contracts with electricity generators in effect closes the market to new companies.

So the very structure of the market starts to snuff out serious competition. Suppliers don't need to compete vigorously on low prices because they do not need to fear the price competition that a new entrant would provide. Four of the big six suppliers have put up their prices in the past month. They are owned by companies from different countries, with different portfolios. But only £13 separates their basic tariffs. Not a sign of cut-throat competition.

Energywatch wants a reference to the Competition Commission to fix the market in the long term. But that will not help anyone who wants to act now to limit the impact on a household budget.

There are no "either/or" choices for the energy market. The problems are deep-seated and require greater attention than a simple imperative to switch and save.

Adam Scorer is campaigns director at energywatch