The recently released green manifesto from the UK Labour Party has drawn attention to the current state of the energy sector and pledges that, should Ofgem's 'reform' not show the unspecified results it desires, the government will intercede in the market further. If this happens, it is possible that the market could be damaged rather than improved.
Since full market liberalization in 1996, only around half of all customers have chosen to participate in the market actively by switching their suppliers, with only a fraction of consumers doing so regularly. Nonetheless, for those that have switched, the benefits can be considerable. While the current situation falls somewhat short of the original vision of a liberalized British energy market, with many suppliers competing for the attentions of the customer base, assigning blame for any shortcomings to the suppliers is naive.
Currently, retail margins are far lower than might be expected from other businesses, considering the risks that power suppliers take on. Instead, much of the profit in the energy sector comes from the upstream, including generation. Supply businesses are therefore often a convenient way for energy companies to market their generation output. With volatile wholesale gas prices and the subsequent instability in wholesale power prices, energy companies can offset an element of the risk of supply by ensuring that they have a strong upstream position. There are suppliers that depend solely on the wholesale market rather than self-owned regulation, but previous spikes in the wholesale market have shown how vulnerable this position can be.
Ultimately, there is competition out there for consumers, but it is up to them to actively seek out the best deal. With the rise of information technologies and strong marketing campaigns saturating the media, it is disingenuous of anyone to point the finger at suppliers and accuse them of not doing enough to encourage switching.
In addition, to artificially restrict energy companies from supplying themselves will only increase the market opportunities for middlemen and increase the administrative burden. While this may allow more participants to join the market, it will also dramatically reduce the market's attractiveness to larger investors, at a time when the industry faces a GBP200 billion investment bill over the next few years.
Regardless of the UK election result on May 6, the newly formed government would be wise to accept the legislative responsibility to ensure the smoothest possible course for the planning and building of new power generation and transmission, and let the market operate with as little interference and micromanagement as possible.