Obstacles to supplier switching in electricity markets in Europe


Brussels, Belgium — (METERING.COM) — June 2, 2008 – Since July 1, 2007 all consumers in Europe have had the right to choose their electricity and gas suppliers and while obstacles to switching are being reduced there is room for improvement on a wide range of issues, a recent survey by the European Regulators’ Group for Electricity and Gas (ERGEG) has found.

A supplier switch should be as quick as possible within technical and organizational limitations and taking into account customer protection. However, the duration of the switching process differs significantly between EU countries, from less than 1 month to more than 2 months, with a typical duration between 1 to 2 months.

As the number of market transfers multiply, the need to automate the exchange of information increases. An increasing number of countries are introducing standard data formats, the most common of which are EDIFACT and XML, but efforts should be made to harmonise the data transfer across Europe.

Meter reading is another issue where practices differ from one country to another. In most member states, the distribution organization is responsible for meter reading and for the quality of the meter value data. It is also most common that the meter operator reads the meter.

One obvious obstacle to supplier switching is a lack of economic incentive. There could be two reasons behind this. One reason is that for many small customers there is just not enough possibility to save from switching supplier. Even when there are no direct economic costs, searching for an alternative supplier has a cost. In cases of regulated prices, there will also be no incentive to switch since these prices are predominantly lower than market prices. In those countries where leaving regulated prices is irreversible, customers are locked to the incumbent supplier. Regulated end-user prices are still offered to a large share of customers in many EU countries.

Other obstacles were identified in some countries. In France, residential customers are anxious about switching due to a lack of confidence in new suppliers’ offers, difficulties in comparing prices, a lack of information about the switching process, the irreversibility of leaving regulated tariffs and the example of industrial customers that have left regulated tariffs for market prices. These obstacles are also applicable in the Romanian market, together with the lack of appropriate metering devices.

In Austria, not only supply side but also demand side factors increase switching costs and thereby market entry barriers. A lack of information and transparency is an important reason for the rigidity of customers even if the potential savings are high (e.g. in Austria € 70/year on average). Such in-transparent market information includes in-transparent billing, confusing information by incumbents and in-transparent price information.

In Poland, the lack of liquidity in the wholesale market due to binding long term historical contracts is perceived as a main obstacle to switching and competition.

Slovenia has identified the lack of common understanding of the procedure as an obstacle to switching. Another problem is the lack of a central information system and standardized data formats which sometimes results in overload of manual data processing at the distributor, thus delaying the switch.