Insights / Ofgem’s Smarter Markets programme: What's affecting the business energy market?

Ofgem’s Smarter Markets programme: What's affecting the business energy market?

2nd June 2017

Smart meters are coming – that much everyone knows. But they’re just one element of a move towards a “smarter market”: a term coined by Ofgem that marks a nationwide culture change of the electricity industry.

Smarter market: the goal of a more efficient, dynamic energy market in the UK that uses innovation to provide better service, competitive options and protection for consumers.

The path towards a smarter market has been split into five key areas of focus by Ofgem. Much of it focuses on the domestic side of the energy market – for example, the ‘consumer empowerment’ project which, in particular, is looking to protect vulnerable individuals when acquiring their personal energy supplies.

However, several of the projects will be affecting businesses and the broader energy market. Below, we’ve focussed on the three which are most relevant to business energy. Read on to find out the plans that are in place…

Ofgem’s Smarter Markets programme: What's affecting the business energy market?

1. Electricity settlement

For a while now, the energy industry has been busy behind the scenes working on large changes to the way that energy prices are calculated.

In short, everyone – starting with large business and now moving on to small businesses and domestic consumers – will start getting their energy measured and charged for on a half-hourly basis. This won’t drastically affect the process of energy consumption on the user end, but with the addition of smart meters it can mean more efficient energy usage thanks to extra data telling us when the best time of day to consume energy will be.

2. Demand-side flexibility

‘Demand-side’ refers to the consumer side of the energy industry, as opposed to the supply side. Making more options when it comes to how we can consume energy can help us deliver against carbon commitments, provide a more stable energy service and at a more efficient cost.

New methods are emerging to help make the network more flexible, including:

Demand-side response – this is when an energy consumer can respond to a signal to alter, or shift, the amount of energy they draw from the grid at a specific time - meaning that consumers are able to use energy when they know that it’s cheapest. Solutions include special tariffs and schemes that reward consumers for changing how they use electricity, and smart meter technology also plays a large part in making it easier for consumers to know what they’re spending and when.

Energy storage – Better battery technology will mean we can store energy for times of high consumption or when there is too much for network cables to carry. This would be particularly useful for lessening the downside of intermittent renewable generators, such as wind turbines (which are reliant on favourable weather conditions, unlike ‘always on’ renewable sources like biomass).

Distributed generation – Locally generated renewable energy – for example, office buildings with solar panels – can help save on costs of transporting energy from the point of generation to the point of usage. This will also help integrate more sustainable energy sources into our day-to-day lives.

3. Retail market review

Launched in 2010 as part of a wider review of consumer engagement, the retail market review was concluded in 2013 and introduced reforms across the business energy market.

These changes were informed by both the retail market review and an earlier probe into the business energy market. The changes include clearer and simpler processes and fairer treatment for small businesses, as well as revising the micro-business definition.

The reforms have been introduced with the hope that they will improve consumer-provider relations by restoring trust in energy suppliers and empowering small businesses to make informed choices and ultimately have confidence in the energy market.

To find out more about the smarter markets programme and keep on top of latest updates, visit Ofgem’s website by clicking here.