Regen’s response to the consultation highlights that the USO exemption is not sufficient on its own to create the retail market needed for the future. It is not just small suppliers that need to innovate and we recommend that Ofgem use this reform as part of a wider approach that supports innovation across the market, with a particular focus on innovation that supports a just transition.
We also flag that although USO exemption is valuable, small suppliers are still likely to struggle to create a profitable business model since economies of scale are a main driver of profitability in the retail market. Even with this change, they will still face significant financial and operational challenges. While we support maintaining a focus on financial resilience and other relevant supplier obligations, we therefore suggest that Ofgem review its financial resilience assessment to ensure it is proportionate for smaller suppliers.
We also recommend exploring and clarifying the treatment of a ‘white labelling’ approach, where new suppliers are backed by established ones – a structure that could help new local suppliers overcome some of the financial and operational risks of entering the market.
Regen also raises comments about the review process for this change. Innovation should be measured by its impact on consumers, not by the number of new suppliers. With this exemption, it is likely that smaller suppliers will create specialised products that initially serve more affluent and engaged consumers, particularly those with smart meters and low-carbon technologies, with people in vulnerable circumstances having fewer opportunities to benefit. Regen’s response therefore calls for stronger monitoring of consumer outcomes as well as a materiality assessment of the chosen 50,000 customer limit.
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