Clients

We supported the Ofgem Supplier Hub project through a piece of market research and strategic advice work, which we performed with our partners VaasaETT. We looked at international examples of different models in two areas of policy design, namely:

• Customer switching and protection of disengaged customers; and
• Supply disintermediation and innovation.

Our reports were published by Ofgem and are available via the links provided in the text below.

Customer Switching and Protection of Disengaged Customers

We analysed examples of default protection arrangements that could be introduced from other markets to GB, including collective switching and default procurement from wholesalers. This addressed the interactions of wholesalers and retailers and the resulting tariffs offered to customers. We also looked at barriers to adoption in GB and the impacts of introducing new policy, including the decision-making activities and timetable needed.

Energy Retail - Customer Switching and Protection of Disengaged Customers

Supply Disintermediation and Innovation

We analysed emerging business models that challenge the traditional view of the relationship between energy retailer and end consumer. Our work focused heavily on barriers to entry and barriers to innovation that exist. The models investigated included:

• Home Control and IoT devices;
• Community Energy schemes; and
• Prosumer models and peer to peer platforms.

Energy Retail - Supply Disintermediation

The DPCR4 price controls for the distribution of electricity included incentives for the management of losses. These incentives define losses as the difference between the electricity that is measured entering the network, and that measured exiting. Challenges in making this calculation included:

• Different companies adopting differing approaches to the measurement and reporting of losses; and
• Data used to measure the energy consumed by small (e.g. domestic) customers changing significantly, potentially masking changes in the underlying level of losses.

We worked with Ofgem to provide assurance of the data provided by Distribution Network Operators (DNOs) on the measured level of losses on their networks and, where possible, reconciling this with data that is generally available on losses by network.

A copy of our report is available on the Ofgem website using the following link:

DPCR4 Losses Incentive Closeout Report

ESP Consulting supported Ofgem and the Authority on the development of options for liquidity intervention in the GB power market, and in particular the potential role of mandatory auctions and market-making. This work, which we carried out in collaboration with Power Auctions LLP, brought international trading and market design experience to bear in developing the detailed design of a mandatory auction and a market maker including:

• Considering what different design decisions for each option would mean for liquidity, in light of participants’ behaviour and the risks of unintended consequences;
• Quantifying the cost of each option; and
• Putting forward fit for purpose option designs.

This assignment followed two previous assignments. First we assisted Ofgem with its initial review of liquidity in GB power and gas markets, and secondly we supported Ofgem on a review of market-making experience in other key power markets including the NordPool area and Germany.

One of our staff spent 8 months on secondment at Ofgem in the Distribution Directorate with, at various times, responsibility for gas distribution policy and charging policy-related issues including:

• Lead responsibility for day-to-day management of gas distribution policy;
• Managing the electricity and gas connections policy team; and
• Developing policy with regard to independent networks, including chairing industry initiatives to implement revised charges for independent electricity distribution networks connecting to the incumbent distribution network.

He subsequently returned to Ofgem in a similar role for a four-month period, with responsibility for connections policy.