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Frozen Out: Business energy supply and the price freeze

Since Labour first announced its intention to freeze energy prices should it form a government after the 2015 general election, questions have lingered about the practicalities of such a policy.

Criticism has become more vocal in recent months, as wholesale energy prices have begun to slide, with William Hague MP, Leader of the House of Commons, blaming the policy proposal for suppliers’ reluctance to reduce consumer costs more quickly. Although Labour attempted to frame the freeze as a short-term fix within a broader set of policies, providing consumers with protection while the market is fully evaluated and a new regulator appointed, the freeze alone has captured press and public attention.

But political discussion of “the energy market” is misleading. In reality, Britain has several intersecting markets for energy. First, there’s the wholesale market, where suppliers purchase electricity to sell to their customers. Then there are the markets where big businesses, commercial and industrial customers, buy their energy, using their size as a way of negotiating the best prices. And finally, there’s the consumer market, where the “Big Six” and a handful of other suppliers offer tariffs for household consumption. Nobody would argue that Britain’s energy markets are free of problems. However the relative successes are also under-recognised.

Frozen Out explores the following issues, with the aim of informing Britain’s policymakers about the true state of the nation’s energy markets:

  • How different segments of Britain’s energy markets behave
  • Where markets are failing to provide value
  • Whether a price freeze is an appropriate policy response
  • Which other policies could help boost competition and market efficiency in the energy sector

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