The energy retail sector is the customer-facing side of the energy system. Retailers buy electricity and gas on the wholesale market and sell it to customers. But they are also responsible for a whole host of other activities that relate to social and environmental goals, for example, the roll-out of smart meters, supporting customers who get into debt and are struggling with their bills, and delivering government insulation programmes.

In Great Britain, the retail market as we know it took form in the 1990s when reforms were brought in to introduce competition between suppliers. These market reforms were intended to drive down costs for consumers while increasing innovation. But is this the right model to deliver the transition to a decarbonised energy system?

This project aimed to identify a wide range of potential options for structuring and organising domestic retail energy supply -– from the evolution of the status quo to more radical changes – and asking how well these different options would deliver decarbonisation while providing fair access to affordable energy for households. Starting this conversation about potential options could help policymakers think more radically about what is possible in this space.

Successfully delivering net zero will require fairly significant changes to the way households use energy. If decarbonisation policies are successful, people will adopt electric vehicles, heat pumps and other green technologies in much higher numbers, pushing up demand for electricity while reducing demand for gas. Meanwhile, as the power sector decarbonises, and more renewable electricity is brought into the system, there will be a need for more ‘flexibility’ in energy use to keep down peak demand and manage the network through variable volumes of renewable generation. Households could play a key role in this, although there’s still a lot to learn about how far individual consumers will want, or be able, to use energy flexibly.

It’s not clear that the current retail model is well structured or incentivised to deliver this transition. At a basic level, retailers’ profits are tied to higher energy consumption, limiting incentives to help customers reduce their usage. The relative lack of innovation in customer propositions in the retail energy market to date is a particular challenge. Some retailers are already repositioning themselves to engage consumers in household decarbonisation, but the current regulatory model makes this harder. For example, consumers have the right to switch energy suppliers at any time, which means that services that support decarbonisation but require a longer-term commitment to enable cost recovery are currently infeasible. 

Many people across the sector believe that the market could operate differently, but there is little consensus on the range of reform options. There is also a widespread recognition that households continue to face pressures on their budgets, which are likely to impact the extent to which some options can be delivered in the near term. This work aimed to start a wider conversation about the long-term future of the energy retail market and how it can adapt to, and support, a future net-zero energy system.

We brought people from across the energy sector together to think creatively about whether the current market structure best supports this energy transformation and to identify potential alternative approaches. We wanted to take a step back from the current system and think about a future energy system in the next 10-15 years: 

• What does a future energy system look like?
• Does the purpose or rationale for a retail sector change when thinking about a future energy system?
• What are the different options for reform, and how could they be achieved?

We published a report in April 2024 outlining five alternative models to the energy retail market that could accelerate household decarbonisation. Addressing current issues, such as the lack of financial incentives for customers to reduce consumption, our models range from loosening regulation to encourage more innovation to turning electricity network operators into energy suppliers. Rather than recommending a specific model, the report prompts wider discussion about the long-term future of the energy retail market and the types of changes that could potentially accelerate decarbonisation and better outcomes for consumers.