Ofgem’s faster energy switching program
On 18 July 2022, Ofgem delivered its program for faster and more reliable switches. The overhaul of the energy supplier switching program was first discussed in 2013 and is estimated to have cost £426 million.
Six months after implementation, here’s our guide to the faster switching program. We’ll review what it means for both businesses and households and discuss the benefits it has delivered.
What is the Ofgem switching program?
To understand the Ofgem switching program, let’s first consider how the energy markets operate.
The market for electricity and gas supply to British properties is deregulated. Energy suppliers compete in an open market to provide customers with the cheapest and best service possible.
To encourage this healthy competition between the suppliers, Ofgem needs to make it as easy as possible for businesses and households to switch energy suppliers.
The stated aim of the Ofgem switching program is to:
Design and implement a new switching process that is reliable, fast and cost-effective and harmonises processes across gas and electricity.
Under the new switching process, suppliers must offer domestic and non-domestic meter points the opportunity to switch within five working days. Once the new switching process is up to speed, switching is expected to be reduced further to two days.
What was wrong with the old energy-switching process?
Ofgem was aware that the previous process for switching energy suppliers wasn’t ideal. The switching processes that home and business energy suppliers follow were designed in the 1990s and were slow and often unreliable.
Typically, it took 21 days to switch home energy suppliers. Considering that switching suppliers involves no physical work and is an admin exercise, three weeks was clearly excessive.
A Which? survey conducted in 2019 found that 40% of participants found the switching process confusing, and 37% found it too slow.
The process for switching business energy suppliers is even more cumbersome, with the difficulties with electricity and gas switches being dealt with separately.
How does the Ofgem switching program work?
The Ofgem switching program introduces a new Central Switching Service.
The Central Switching Service sits out the centre of the market, allowing the effective transfer of customer data from one supplier to another. With over 100 business electricity and business gas suppliers in the market, the web of communications between them is complicated.
The Central Switching Service expects to transfer billions of individual data points between suppliers.
To allow the billing and metering software used by the energy suppliers to interact with the Central Switching Service, a CSS Gateway provides real-time access to read and change data.
The new process will initially reduce the switching time to five days and cover the following products:
Who is involved in the Ofgem switching program?
To roll out the switching program, Ofgem has relied on the following third-party contractors:
- The Data Communications Company – part of the Capita Group operating the Central Switching Service.
- The Retail Energy Code Company – A non-profit overseeing energy market arrangements.
- EDW Technology – An energy management company that provides the CSS Gateway.
- PwC – A global consultancy acting as the switching programme coordinator
How has the Ofgem switching program improved business energy switching?
The Ofgem switching program has significantly improved the switching speed between business gas and business electricity suppliers.
One business energy supplier, Crown Gas and Power, has said that the effect has been immediate, and they’ve been able to switch 50 customers in the program’s first week.
In 2022, energy prices have been highly volatile, adding another confusion for business owners. However, allowing businesses to quickly switch between an unfavourable deemed contract and a fixed-rate agreement with a new supplier is a massive benefit. Faster switching allows business owners to quickly benefit from cheap business electricity and gas offered on the market.
How has the Ofgem switching program improved home energy switching?
Unfortunately, this is yet to be determined.
Currently, the energy price cap is significantly below the actual cost of energy due to the Government’s Energy Price Guarantee.
The Energy Price Guarantee protects people from the actual cost of electricity and gas during the energy crisis. Unfortunately, this does have the effect of freezing competition in the energy market.
No home energy suppliers offer below-price cap prices, so switching volumes have fallen near zero.
We’ll have to wait until 2024 to see the benefits of the Ofgem switching program on the household energy market.