Promoting Competition in the Retail Energy Market

Despite the energy retail market having been fully open to competition, also for residential consumers, for more than fifteen years, it has proven extremely difficult to engage these energy consumers in this market. It could therefore be of value to look at alternative ways to ensure that consumers benefit from retail competition in the energy market. This FSRDebate assessed the recent Italian experience of running auctions among suppliers to allocate bundles of consumers who were still in the regulated market. These auctions resulted in significant savings with respect to the benchmark defined by the regulator.

The energy retail market has been fully open to competition (i.e. also for residential consumers) since July 1st, 2007. However, it has proven extremely difficult to engage energy consumers in this market. The switching rate of consumers is generally considered as one of the key indicators of well-functioning retail energy markets. While switching rates do not provide conclusive evidence, they have remained low – typically in the 5-6% per year – in many countries for many years after liberalisation. More recently, some Member States have witnessed an increase in the rate at which residential electricity consumers switched their suppliers. In 2021 switching rates sharply increased in many Member States, for example getting to or close to 25% in Belgium and the Netherlands, as a result of the much higher energy prices in that year, which encouraged consumers to look around for better terms, difficult though to find at that time. In 2022, switching rates decreased once again, with their levels for residential electricity consumers staying above 20% only in Belgium and Spain, while France, Greece, Slovenia, the Czech Republic, Romania, Latvia, Austria, Estonia, Croatia, and Slovakia still had switching rates at or below 10% – below 1% in Luxembourg.

Many reasons have been given for the reluctance of energy consumers to take full advantage of retail competition and shop for the best offers available on the markets, including the scepticism created by a number of retailers going out of business during the recent energy crises.

It could therefore be of value to look at alternative ways to ensure that consumers benefit from retail competition in the energy market. The recent experience of ARERA, the Italian Regulatory Authority for Energy, Networks and Environment, could provide a useful reference. Concerned with the slow pace at which electricity consumers were leaving the regulated markets and opting for alternative offers available in the free market, ARERA organised a set of auctions through which bundles of consumers were allocated to competing suppliers which bid discounts with respect to the cost-reflective benchmark defined by the regulator, which they offered to apply for a period of three years.

The results of the last auctions, for residential customers, which were held at the beginning of the year imply substantial savings for consumers who are still in the regulated market, in the order of €130 per connection point per year1. Such large savings raise interesting questions regarding the expected future behaviour of consumers as assessed by suppliers.

In this context, the debate will assess whether the Italian experience could serve as a reference for other countries also characterised by a low degree of energy consumers’ engagement and what the results of the Italian auctions could suggest in terms of the expected future behaviour of consumers.

Programme 

Introduction to the Debate and Opening Presentations

14.00 – 14.05    Introduction to the Debate

Alberto Pototschnig | Florence School of Regulation

14.05 – 14.20    The scope, design and results of the Italian retail auctions

Massimo Ricci | Director, Energy Division, ARERA
Guido Cervigni | Managing Director, DFC Economics

14.20 – 14.30    Empowering energy consumers

Tadhg O’Briain | Deputy Head of Unit, Consumers, Local Initiatives, Just Transition, European Commission 

Panel Discussion: Introductory Remarks, Polls and Comments

Moderator:     Ilaria Conti | Florence School of Regulation

14.30 – 14.50    Introductory remarks from the panellists

Elsa Água | Member, Customers and Retail Markets (CRM) Working group, CEER

Pierpaola Pietrantozzi | General Secretary, Adiconsum (Italian Consumers Protection Association)

Rita Mota | Chair of Retail Market Design Working Group, Eurelectric 

Elisa Rondella | Vice-President, AIGET

14.50 – 14.55    Polls

14.55 – 15.20    Comments on the polls outcome and Q&A from the audience

Panellists

15.20 – 15.30 Concluding remarks

Ilaria Conti | Florence School of Regulation

Alberto Pototschnig | Florence School of Regulation