New research on energy tariffs for vulnerable consumers

An investigation of options to help those struggling with unaffordable energy

1 June 2015

Our research for Citizens Advice on energy tariff options for consumers in vulnerable situations was published last week. The Competition and Markets Authority (CMA) will soon issue the findings of a comprehensive energy market review of which the government has pledged to implement the recommendations. In anticipation of this, the study aims to provide researchers, policy makers and energy market stakeholders with a better understanding of options to ensure that disengaged vulnerable consumers are not penalised by higher tariffs.

Dr Toby Bridgeman, researcher at CSE, led the study. He said: "The research shows that there are several straightforward options that could be introduced to significantly reduce the fuel bills of millions of vulnerable consumers who are currently disadvantaged by the energy market, paying over the odds for their fuel. It would be fantastic if the investigation into the energy market being conducted by the Competition and Markets Authority were to recognise and support some of the recommendations in this report."

Download the report.

Previous analysis by Ofgem indicates that poorer consumers could be losing out more than other disadvantaged social groups by not switching energy supplier – the number of poorer ‘sticky’ customers (those who are inactive in the energy market) is 10% higher than average amongst these groups. Based on average savings, consumers on non-fixed tariffs could have saved between £158 and £234 a year (2012-2014) had they switched. So Citizens Advice commissioned this research to investigate options to ensure that vulnerable sticky consumers have access to affordable energy.

The study was made up of two main phases. Firstly, we reviewed ten tariff options, drawing on both existing evidence and expert stakeholder opinion. The second phase consisted of modelling and analysis to explore the potential distributional impacts of options deemed worthy of further exploration.

Four tariff options were advanced to the second phase. Of these, two were found to offer high savings to a target group of vulnerable consumers: a ‘backstop’ tariff that is set at the same rate as the suppliers’ cheapest deal, and an extension of the Warm Home Discount (WHD – a £140 rebate on electricity bills) to a wider consumer group.

The former would provide an average discount of £100 for our target group at the cost of £13 to all other domestic consumers – and this could be refined to exclude those that had previously switched, giving savings of £131 at a cost of £11 to other domestic consumers. The extension of the WHD to a wider group would provide a discount of £135 on annual energy bills for around 1 million more consumers than receive the benefit at present, at a cost of just £5 for all other domestic consumers.

Either of these tariff options could be very effective at significantly reducing fuel bills for vulnerable cosumers currently disadvantaged by the energy market and require only small – and in some cases negligible – increases in the bills of other households.

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