This presentation by the UK Competition and Markets Authority was made during the “Radical innovation in the electricity sector” held at the 63rd meeting of the OECD Working Party No. 2 on Competition and Regulation on 19 June 2017. More papers and presentations on the topic can be found out at oe.cd/1ZW.

1. Innovation in the energy
sector
The UK’s Energy Market Investigation: the
impact of regulation on new technologies
Sharon Horwitz
UK Competition and Markets Authority
19 June 2017
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2. Overview of our investigation
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The most comprehensive and wide-ranging
investigation of the energy market since
privatisation
● We found a number of competition
problems in wholesale and retail
markets, including in the regulatory
framework
● We identified significant ‘customer
detriment’ in the form of higher prices
and the limiting of innovation
● Our remedies package contains over 30
different measures to address these
problems
● These remedies will serve to help
modernise GB’s energy market to the
benefit of consumers

3. Findings
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• A number of technological innovations offer significant customer benefits,
including:
• Smart meters, which facilitate load-shifting of demand, development of
Internet-of-Things etc
• Digital comparison tools, which reduce the transaction costs faced by
customers when they seek to engage
• Many of these innovations require changes to existing industry regulations /
codes to realise the full benefits
• We found that regulations / codes / legislation were not necessarily keeping
pace with technological innovations
• GB system of industry overseeing its own regulation / codes allowed
(large) incumbents to prevent / delay changes that were not in their
interest

4. CMA remedies
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• In order to improve outcomes for customers, the CMA introduced a number of
remedies:
• Improve industry code governance
• Giving Ofgem greater powers to ensure important changes to
regulations are made in a timely manner
• Increase customers’ access to their data – required for many types of
technological innovation to work effectively

5. Code governance issues
• Several examples of beneficial code reforms being delayed / blocked, including
• Locational pricing of transmission losses
• Half-hourly settlement (HHS) of electricity
• Use of more accurate gas settlement data (Project Nexus)
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• Many aspects of GB energy markets regulated via a system of industry codes,
managed by industry participants
• Energy firms have conflicting interests/limited incentives to deliver policy
changes
• Ofgem had insufficient powers to influence development & implementation of
code modification processes
• CMA recommended Ofgem take a more active role in code governance and
be given enhanced powers to modify industry codes

6. Improved access to data
● Customers find shopping for energy confusing and time-consuming
● New technologies have the potential to simplify this process and reduce
switching costs – greater engagement, lower costs, better customer service
● Many technologies are already transforming the process of purchasing
energy, eg DCTs, faster switching etc.
● However, improving customers’ access to their own data will allow the
development of additional/better products and services in the energy sector
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7. Improved access to data (II)
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● CMA recommended extension of
“Midata” programme and broader
access to other industry databases to
facilitate introduction of new products
/ services
● UK Midata programme: gives
customers information on their pattern
of product usage where required to
make informed choices, eg banking,
mobile phones, energy

8. 8
• Investigation sought to identify “features” that prevented, restricted or distorted
competition, and design remedies where appropriate
• CMA not well placed to identify / predict which technological solutions would be
successful or offer benefits to customers
• However, investigation identified:
• Weaknesses in the regulatory/governance framework – recommended
enhanced powers for Ofgem to intervene on an on-going basis where
regulation is not keeping pace with technological / policy objectives
• Importance of ensuring customers’ have access to their own data in a
useable format in order to facilitate the development of innovative new
products and services in the retail market
Concluding thoughts

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Full details of the investigation and the
remedies package are available on the case
page:
www.gov.uk/cma-cases/energy-market-
investigation