The Changing Structure of Energy Firms and Retail Energy Pricing: Implications for the Cost-of-Living Crisis and the Transition to Net Zero

Context
Energy markets have been under intense scrutiny in recent years. The energy crisis precipitated by the war in Ukraine has seen consumers’ energy bills soar, with profound consequences for the cost-of-living. At the same time, the push for Net Zero will require significant new investments from households and businesses as part of a sweeping clean energy transition.
Historically energy markets have been dominated by large vertically integrated incumbent firms. This has led to persistent concerns about weak competition and a lack of choice for consumers.  But in the last few years there has been a shakeup of the companies operating in many energy markets. In the UK, five of the six largest energy companies have broken up their businesses and new firms have entered, often introducing new business models and consumer products.
 
Key Challenges
Given this turbulent period, it is striking that there remains a lack of consensus on several important questions regarding energy market design and the structure of energy companies. Does energy tariff choice meaningfully benefit consumers? Does retail competition send the right price signals to consumers looking to make low-carbon investments? What are the implications of different energy tariffs for energy poverty? How should the risks to consumers from companies going bankrupt be managed? Is there a case for companies owning their own power plants to mitigate these risks, and if so, at what cost? This project will use new data and advanced economic methods to undertake novel research that can address these gaps in our understanding.
 
Objectives and Contribution to Knowledge
This research project will study the UK energy markets to address a series of key research questions:

How have the business models and organisational structures of energy companies changed in the past decade?
How does the breakup and restructuring of large incumbent energy companies affect competition, insolvency risks and consumer prices?
How does energy tariff choice affect energy poverty and consumer investments in low-carbon technologies?

In tackling these questions, this research project will advance current understanding and generate new knowledge both within and outside the field of energy and environmental economics.
 
Research Impact
The proposed work is incredibly timely given the recent energy crisis, wider concerns about the cost-of-living and regional disparities, as well as the risks posed by climate change to society, the economy and the environment. This research will therefore provide highly relevant insights for key UK policy priorities on Net Zero, Cost-Of-Living and Levelling Up. Findings will be disseminated through a combination of published academic papers, blog posts and conference presentations. There will also be extensive direct engagement with policy stakeholders, including Ofgem who is one of the project partners.