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Submitted by on 25 Nov 2013 – 16:34

By Monique Goyens, Director General, BEUC

Energy markets: Putting the consumer in the spotlight

Energy is a multi-billion euro business, but for most households it is just a commodity. For consumers, energy is just what switches the light on, heats their water or cooks their food. Therefore, consumers need reliable access to affordable energy in a consumer-friendly market environment. Is this merely an ideal or is it where Europe’s energy market is actually heading to? Is it also the fundamental priority for Europe’s energy sector?

What is the reality for energy consumers?

When it comes to signing up to an energy supplier, millions of consumers in countries such as Greece, Bulgaria, Romania, Cyprus or Malta do not have the choice between different suppliers or else it is an extremely limited one. For those millions of consumers, a liberalised, competitive EU market is nothing but a theory.

In countries such as Spain, Portugal, Italy, Belgium or France, many European consumers, although the market has liberalised to a degree, still do not reap the benefits promised to them such as downward pressure on prices and better services due to competing suppliers.

There are countries such as the UK, Finland, The Netherlands and Sweden in which liberalisation has actually delivered real competition. Unfortunately however, competition does not solve all consumer issues and the level of consumer satisfaction is often low. A recent European Commission study concluded that two-thirds of consumers are dissatisfied with their suppliers.[1]

Energy services are very important for consumers for obvious reasons. Nonetheless, the need to champion the importance of making energy more affordable for all European citizens, without exception and in particular for those in vulnerable situations, is ongoing. For instance, the reality for many Lithuanian consumers is living on a €300 salary and €200 gas bill per month. Winters are particularly difficult.

Finally, important issues for consumers such as understandable billing, ease of switching, accessing redress or price comparison tools are still commonplace problems. The study mentioned above cites 72% of consumers being unhappy with how their complaints are treated and 50% of consumers surveyed say they are unaware of how much electricity they consume.

Our vision for the future of energy consumers

Together with the Council of European Energy Regulators (CEER), we identified a number of general principles which we want the sector to enact and which inspired a Joint CEER/BEUC 2020 Vision for Europe’s energy customers.

The sector is embarking on a period of profound change in the way energy is produced, transported, commercialised and consumed. As the sector undergoes transformations on many levels, consumers must not be left behind, but placed at the centre of our collective thinking. The Joint Vision outlines the pillars on which the energy sector should firmly stand vis-à-vis its consumers. These pillars are reliability; affordability; simplicity; protection and empowerment.

Reliability means the supply of energy is always there when consumers need it, even more importantly during cold winters. Consumers need to be able to trust their energy suppliers and know they are looking after their supply while doing their utmost to provide quality customer care when required.

Affordability is key as it is an essential service in consumers’ lives. In every European country there is a vast number of consumers who believe energy prices are too high, while too many are struggling to pay their bills. Energy prices should reflect the real cost of production.

As we move towards a more sustainable society, of new infrastructure and where renewables are the norm, not the exception, investment costs should be fairly distributed across different levels of the value chain.

Simplicity because being an energy consumer can never be a full-time job. Consumers must receive information about their consumption in a simple manner, by easy-to-use and accessible means. It must be easy to understand bills and manage energy consumption using available technologies. It should also be simple to switch operators, while new technologies such as smart metering should not be imposed.

In terms of protection and empowerment, the holy grail of consumer policy, it means that consumers must be harboured against unfair commercial practices, abusive contract terms, misleading advertising, aggressive marketing etc. The balance of power in the energy market must also be set right. Consumers must be sufficiently empowered as market actors by being able to choose their preferred operator, defend their rights, vote with their feet when dissatisfied and obtain redress where damage has been done or detriment suffered.

Many BEUC members are now leading the charge on this front with collective switching campaigns, a new way to persuade energy companies to be more competitive and adjust to consumers’ wishes.

A smart future?

These pillars can lay the foundations of a consumer-centred energy sector. But while these foundations are still far from being achieved, the sector’s attention seems to be more often interested in promises about a ‘smart energy future’ involving smart grids, smart consumers, smart consumption and all this thanks to smart meters.

Smart meters are at the forefront of a misguided effort to address the existing problems with the wrong cure. If EU legislators and Europe’s energy companies were to be believed, smart meters are indispensable for energy consumers.

Smart meters are currently en vogue and this comes as no surprise. They represent a multi-billion euro market and so many companies hope to secure a share. Beyond the production, sale and installation of smart meters, the energy sector hopes to cash in on them with more effective grid management, easier (dis)connection of customers or reduced meter reading expenditure.

But, the biggest beneficiary would be the energy consumer. Or at least so we are told. The argument put forward by smart meter industry groups and the European Commission alike is that of energy savings. Households with smart meters would be able to reduce their energy consumption level by at least 10% thanks to the availability of real-time consumption data.

Contradicting this wave of enthusiasm almost feels like heresy, but our own data suggests that energy savings of 2-3% are more realistic, and they will not in the end materialise for all consumers. The main reason for such diverging numbers is that smart meter advocates make overly optimistic estimations of consumers’ ability to change behaviour. Let’s be clear: installing smart meters will not lead to automatic savings. Reducing consumption will heavily depend on how much we use the smart meter and how much we modify our habits, for instance at what time of day we use the washing machine. On this point, more realism is urgently needed.

For many of us the topic of energy does not trigger much excitement. Even those who engage from the beginning and change habits might relapse to their old attitudes when even the fanciest smart meter loses its attraction. Our principles of simplicity and empowerment outlined will not be addressed by merely installing smart devices in peoples’ homes.

Unfortunately, there are more reasons to be cautious. There are unanswered questions on the protection and security of data. That smart meters collect personal information such as details on what electric appliances are used and when, or consumption patterns which allow companies to predict how many people live in a home or when a family is on holidays, all present an important privacy challenge. Such data protection concerns and in particular the issue of where consumers’ personal data is stored have not been resolved.

There is no such thing as a free lunch – smart meters are expensive and have a considerably lower life expectancy than conventional meters. Inevitably the consumer will face the bill. But is this fair when businesses are expected to profit most?

Consumer organisations are not against a smarter energy future and achieving energy efficiency through new technologies. In fact, consumer groups throughout Europe have campaigned relentlessly to receive better information on our energy consumption. What we ask for is that everyone involved takes a step back and carefully considers what measures would really help consumers and fix existing problems in the energy market. And where there are investments and new costs involved, they should be split fairly between all involved.

An outlook of sustainability

It is in all our interests to construct a more sustainable society, one which takes care of generations to come and strikes the right balance of values, economic and environmental interests. We all know the transition to a sustainable future cannot happen without energy consumers. Therefore it is crucial the pillars outlined above are turned into a reality for all. Only by defending consumer rights, empowering them and fostering their trust can we ensure they will engage effectively in energy markets, learn how to be more energy efficient and trust those who provide energy to their homes.

This is not a push which consumer organisations and regulators can do on their own – it needs the collaboration of policy-makers, industry and regulators.

BEUC, The European Consumer Organisation has a membership of 41 well respected, independent national consumer organisations from 31 European countries (EU, EEA and applicant countries). BEUC acts as the umbrella group in Brussels for these organisations and our main task is to represent our members and defend the interests of all Europe’s consumers.

[1] Consumer Market Scoreboard 2011