Effective Paths for Consumer Empowerment and Protection in Retail Energy Markets

Abstract

Consumer empowerment and protection are frequently discussed in contemporary energy policy debates. The process of consumer empowerment through information and consumer education has great potential, yet consumer switching as the concomitant outcome of this process remains low. Additional protection for vulnerable consumers is called for. This article is centred on the path to achieving consumer empowerment and protection. In particular, it stresses that empowerment should be viewed as a long-term process. Regulators should not focus on the mere outcome of switching and adopt remedies aimed at changing consumer behaviour in the short term. The discussion highlights how attempts to protect vulnerable consumers through an ancillary application of competition law distort the competitive process and should be avoided. Personal vulnerabilities, such as low income, can be better tackled with targeted social policy measures, whereas instances of vulnerabilities pertaining to the market context, such as difficulties in assessing different energy offers, are better phased out through the market mechanism. Keywords Consumer empowerment. Consumer vulnerabilities. Retail energy markets. Competition. Regulation. UK energy market investigation Consumer empowerment forms a leading slogan in contemporary EU policy discourses (EC 2007, 2011a, b, 2012a), including energy market liberalization (EC 2015a, b). This is reflected in the construction of a BNew Deal^for consumers, as part of the promotion of an integrated energy market (EC 2015b), and is explicit in the proposed lengthy and detailed regulatory

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“…In this context, the European Commission (EC) promotes consumer empowerment by providing access to information and extending consumption options e.g., in form of facilitated supplier switching or engaging in RE prosumption [7]. At the individual level this includes the need to choose among consumption/prosumption options requiring individual cognitive capacity to process relevant information [8]. Moreover, prosumership requires the willingness to take risks, access to financing as well as time and know-how [6].…”

“…As consumers are empowered to receive more information for a greater quantity of consumption choices competition between producers on the market increases. This should in turn increase market efficiency and maximise the end consumer's welfare [8]. Thus, access to relevant information becomes the basis for pro-active decision making of (energy) consumers to e.g., switch suppliers which in turn should increase individual utility on the energy market.…”

“…This approach of consumer empowerment in form of enabling and incentivising individual consumers to be active on the market becomes problematic when certain groups among which vulnerable consumers remain passive irrespective of existing incentives. Additional protection measures are needed triggering political and social welfare interventions on the market which may be adversely impacting market liberalisation [8]. Consequently, consumer empowerment is in some cases extended to, in other cases in conflict with consumer protection measures.…”

“…Social policies often only regard one aspect of vulnerability applying their own form of rationality to solving a problem and sometimes stand in conflict with one another [6,8,27]. One of the most striking experiences from the SCORE project so far is in fact related to these in-compatibilities regarding social policies.…”

“…Provision of information about consumption options should lead consumers to the conclusion that e.g., prosumption in the long term is the most cost attractive option and may in some cases mitigate energy poverty. In doing so the legislator follows the logic that consumers-as rational agents maximising their utility-choose the economically most attractive option of e.g., supplier switching or prosumption [7,8].…”