The EU has set itself a deadline to “complete” the internal energy market by 2014. However,  many EU member states have not yet adequately implemented the EU’s energy directives. There is still a lot of scepticsm in Europe about the blessings of a competitive, integrated  energy market. One of the countries that has done most to liberalise its energy market is the Netherlands. So what has been the result for energy consumers? Energy Post’s editor Karel Beckman found out first hand recently when he went out to buy an e-reader. Here is his personal account.
The other day I went into an electronics shop in Amsterdam – called the Mediamarkt – to purchase an e-reader. After I had selected the latest Sony model, and a receipt had been made out to me for €138, the shop assistant asked if I was perhaps interested in a sales offer from an energy company.
I thought, why not? I was taken to another desk inside the shop which was run by Essent, an old established Dutch utility company which was privatised some years ago and is a now subsidiary of the the large German utility RWE. I got to talking to an intelligent young salesman, whose first name was Ramazan.
Ramazan told me it might be a good idea to sign a three-year contract with Essent at a fixed price, since that would protect me against possible price rises in the electricity sector. I said I believed electricity prices would likely come down rather than go up, and he immediately admitted that, yes, there was overcapacity in the market, especially as a result of all the German renewable energy. Still, he added, you never know. And prices for natural gas were quite likely to go up, with the Ukraine crisis and all that. I had to admit that he had a point there. He seemed very well informed!
He went on to make me a very attractive offer. But before I tell you what it was, I have to explain a bit of the wider context of this story.
Well-behaved boy
In the Netherlands we often complain (or used to anyway) that we are the most well-behaved boy in the EU classroom. In other words, we obediently do (did) what the teacher in Brussels tells us – and more. This was certainly the case when it came to the unbundling of our energy companies. The Dutch government adopted very radical requirements, demanding total ownership separation of all supply and distribution activities. This is more stringent than required by EU law, which allows utilities to retain ownership of networks as long as supply and distribution activities are carried on separately.The latter is the case for example in Germany.
No such luck for Dutch energy companies. (Two of them are actually still fighting the unbundling requirements in court.) Production and supply companies now operate entirely independently of the network operators. Almost all of them are privately owned now, whereas the network companies (the distribution system operators) are by law required to stay publicly owned (usually by provincial and local authorities). Thus, intriguingly, whereas a company like RWE still owns extensive distribution networks in Germany, its Dutch subsidiary Essent has had to divest its networks completely.
The Dutch government decided on this course because it believed competition could best be served through complete unbundling and letting private players serve the market. At the same time, the government, through the state-owned high-voltage network operator Tennet, invested hundreds of millions of euros in expanding interconnections with neighbouring countries, building new high-voltage cables not just to Germany and Belgium but also to Norway and the UK (with more cables to Norway and Denmark planned for the future). At the same time, Dutch electricity exchange APX was one of the most active proponents of “price coupling” in North West Europe. Thanks partly to APX, first power trading on the French, Belgian and Dutch markets was integrated. This was later gradually extended to the whole of North West Europe. (Indeed, in May of this year price coupling will be extended to South West Europe, making spot power trading possible in a single market across a large part of the EU.)
The Netherlands, then, is a model country when it comes to following the EU’s liberalisation policy, as laid down in the famous Third Energy Package (2009). As most readers will know, the EU has promised that the internal energy market will be “completed” by the end of this year, but many EU member states have by no means “completed” the process. Many probably don’t even believe in the blessings of competition and integration or have vested interests resisting it.
Too good to be true
So what is the result of this exemplary Dutch energy policy? Let’s go back to the shop floor of the Mediamarkt (a German-owned chain store actually). When I asked Ramazan what offer he could make me, he took me to a large computer screen and asked for my address. After he had entered this into the computer, he informed me – correctly – who my current supplier was, how much I had to pay for my electricity and gas, and what type of contract I had with them! In fact, I did not have a fixed contract anymore, as he could see on his screen, so I was free to switch supplier at a moment’s notice.
The electricity price he offered me was a fraction higher than what I was paying to my current supplier, but the gas price was a bit lower. The total amount was about the same. However, I could get a €90 euro annual discount on certain fixed costs. And I was offered a voucher for €175 (!) to spend in the Mediamarkt. Essent, he told me, had made a deal with Mediamarkt to sell energy through its shops for five years. “We believe this works better than door-to-door sales.”
So I was offered a deal effectively worth €265. What was the catch? Well, the contract was for three years – but, as a matter of fact, as Ramazan explained (again correctly), under Dutch law customers are entitled to switch suppliers after one year. I actually liked the price guarantee, because under the contract I had I was not sure what price I was paying at any moment.
If this deal sounds too good to be true, you should realise that competition in the Dutch retail energy market is so fierce that suppliers will actually buy off existing contracts before the expiration date if the penalty is not too high. So I decided to sign up.
When I had signed the contract, Ramazan asked me if I owned my house (I do) and how old my condensed boiler was. About 8 years old, I said. A bit too soon to replace probably, he said. But if you want someone from Essent to come by and advise you, let me know.
This reminded me of the interview I had very recently (and quite coincidentally) with the CEO of RWE, Dutchman Peter Terium, who told me that he wanted to transform RWE/Essent from a power producer/retailer to “the holistic energy manager of the future”. My vision, he said, “is that RWE will put solar panels on your roof, a battery in your shed, a heat pump in your cellar, and we will also manage this complex energy system for you.” My experience in the Mediamarkt proves that the company is working on this. Whether or not they will succeed is another matter of course.
In any case, I walked away with a free E-reader worth €138 plus an extra voucher to spend another €37 in the Mediamarkt. I felt I had done well for myself on that Saturday morning.
And wouldn’t you know it, when I was home, later in the day, someone rang the doorbell – a salesperson from another energy company who wanted to sign me up. I had to tell him I am now off the market for another year. But I can’t wait to switch suppliers again next year.
Editor’s NoteÂ
In researching this story, I tried to get more information on switching rates in the various EU energy markets, but I was not able to find a good recent report. If you happen to know of a good source, please leave a comment here with a link. Much appreciated!Â
The European Commission did put out a report recently on energy price developments across the EU: http://ec.europa.eu/energy/doc/2030/20140122_swd_prices.pdfÂ
As to the e-reader, in case you are curious: I discovered I don’t like reading from a small computer screen. I will stick with paper for the time being…
Michael Knowles CEng says
Hi Karel – I find the only way to make sure you are getting the best deal in the UK is to ask each supplier to quote you direct debit, dual fuel, rates and do your own calculations. Then sign up for the year ahead and do the same again the next year. That way you find that as the suppliers leap-frog each other, you make sure you get the lowest price in any one year! But then I’m retired and have the time to do this tortuous process. This year, having installed a new condensing boiler and room thermostat/progammer and topped up my roof insulation, my direct debit has reduced from ÂŁ163/month to ÂŁ120/month an annual saving of.ÂŁ516 tax free.
Karel Beckman says
Michael, what is direct debt and dual fuel? Would be interested to know. I do agree that liberalisation does not make life easier for consumers. Maybe less expensive in the end, but there is a lot of hassle involved!
Michael Knowles CEng says
Energy suppliers in the UK have tariffs for you to buy both electricity & gas (dual fuel) and agree the annual consumption. Then they set a monthly payment that they can collect from your bank by directly debiting your account. That way it guarantees the supplier their cash flow In return the tariffs are lower than ‘pay as you go’ or by putting money in a slot meter for the gas or electricity as you use it. Because of the concern over ever higher energy prices, the Government is requiring tariffs to made simpler and not to penalise those users that cannot afford to pay by direct debit. So tariffs may level out soon.
Like with the low interest now given by banks it is a game you can play by changing accounts if you have the time as when you are retired!
Fred Dahlmann says
Hi Karel, the only publicly available information source on switching rates I’m aware of is VasaEtt’s: http://www.vaasaett.com/2012/06/world-energy-retail-market-rankings-2012-launched/
Just for disclosure, I have no interests/relationship/shares etc. in this company.
Karel Beckman says
Thanks, Fred. Interesting report. A short version can be freely downloaded. It shows that the Netherlands is the third most active retail market in Europe together with Belgium and behind Ireland and Great Britain. Australia and New Zealand are also very active markets as is Texas. The report does not show, however, whether customers in active markets are better off than in non-active ones.
Philip Lewis says
Thanks a lot for this article, Karel. As Fred Dahlmann and you already noticed, VaasaETT has lots of free switching data. We have been collecting switching data quarterly for the past 17 years, and we track switching in over 40 liberalised markets (every fully liberalised electricity market since it opened to full competition). The last free report was in 2012 but another will be published in June. For prices (as you see in the EU report) you will find we have EU prices for free too: You can find lots of free information at http://www.utilitycustomerswitching.com, http://www.energypriceindex.com.
The question about whether customers in active markets are better off than those in non-active ones is a good question with a very complex answer. Essentially though what we have found is that the main benefit is not related to prices but rather to the degree of customer focus, which is only now becoming apparent as we move towards smart energy services. In markets where it is easy for new entrants to enter the market and where incumbent energy companies can lose large numbers of customers (especially if they lose them to new entrants), we see a growing desire and need (from some suppliers) to deliver new business models to customers. But no, competition does not lead to lower prices – on the contrary, as VaasaETT research has shown, higher margins actually allow and encourage more competition.
Paul Hunt says
Hi, Karel,
In your pleasure at securing what you perceive to be a ‘good deal’, I fear you’re missing the key point about these so-called competing retail energy (electricity and gas) suppliers. Until smart meters are in place in every household and business these retail suppliers are simply ‘competing’ for shares of the massive revenue all final consumers are forced to provide to ensure reliable supplies of electricity and gas. Currently they are unable to compete on the basis of clearly differentiable service offers. This forces them to come up with all sorts of gimmicks and ruses that are focused totally on price and payment options.
So we need smart meters as soon as possible and that will force them to compete effectively in a way that will generate sustainable benefits for final consumers. Despite vague, disingenuous noises in favour, I dont detect any great enthusiasm on their part to speed up the roll-out of smart meters. This, of course, is not surprising. Most of them, in particular the bigger players, are busily milking final consumers to shore-up their damaged balance sheets. Smart meters will put a stop to this gouging, so they will play all sorts of games to keep it going for as long as possible.
The first rule in this area is to remember that every large company that deals directly with the public is a conspiracy against the public. We need the governance, tools and technology to make them jump through hoops to serve us and to put some manners on them.
Jantje says
The dutch have a lot of shared/combined buyers of energy. That gives you a far better deal.
to my knowledge Essent is pretty expensive. that’s why you get the discount 🙂
Ilan M. says
The annual report from ACER/CEER “Monitoring the Internal Electricity and Natural Gas Markets in 2012” published last November could be of interest in this topic. In particular, chapter 2 deals with different regulatory and practical aspects of European electricity retail markets: demand, development of prices and their break down, competitiveness, market integration, price regulation, switching rates (can be consulted in Table 2, page 35) etc. Most information is aggregated on the country level.
The document can be found under the following link: http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER%20Market%20Monitoring%20Report%202013.pdf
Margareta says
In Sweden, yearly statsistics is published regarding renegotioations and Changes of contracts with electricity suppliers. In Sweden, the term Active consumers applies to a combination of households who choose to renegotiate their contract with the current supplier and the households that shift supplier. In 2012, avout 30% of the households were Active with that definition. In fact, all suppliers offer different kinds of contracts, some of which are fixed price for 1-3 years while others follow Exchange prices with a mark-up. This is currently very common, since the risk for high prices has been low lately. Mostly these contracts relate to the monthly prices. However, since october 2012, every customer has the possibility to sign contracts which mirror the hourly Exchange prices. If they do, they have the right to have a hourly meter installed without cost. The purpose of course is to enable the customer to adapt their consumption to the actual market situation. In the end of 2013, 8600 customer had such contracts according to a report by the Energy Regulator. Ei2014:5. http://www.ei.se. So far this possibility is not really marketed, and both suppliers and grid owners need some time to make arrangements Before they can welcome many customers on this kind of contract.