Will the EU’s reform of retail electricity markets help consumers?

Retail energy markets in Europe have performed poorly during the recent crisis. The Commission’s proposed reforms are a step forward, but they should do more to empower consumers and protect the vulnerable. 

Politicians across Europe have been concerned about retail energy bills since global demand picked up after the pandemic, pushing costs to new highs. The problem worsened when Russia invaded Ukraine, throwing energy markets into turmoil and eventually convincing Europe it had to wean itself off cheap Russian gas. In the past year, EU energy policy-makers have been focused on limiting the high profits of energy producers, and redistributing them to households. Energy retailers – companies which buy energy on wholesale markets to resell it to households and businesses – have suffered the opposite problem. Many energy retailers became unprofitable in 2021, as they sold energy to consumers at prices below skyrocketing wholesale costs. Many collapsed as a result, and their consumers had to be transferred to other retailers. Energy consumers ultimately paid for these failures through higher energy bills.

The European Commission has now proposed reforms to both retail and wholesale electricity markets. This insight – the first in a series which will cover the proposed reforms – examines how the Commission wants to reform retail electricity markets and whether it will work. The reforms need to achieve three objectives. First, they should ensure that suppliers can cope with energy price spikes without going bust, so that competition is more sustainable. Second, they need to convince more consumers to take advantage of cheaper energy contracts to capture the benefits of market liberalisation. Finally, they need to provide some protection to the poorest consumers who are not currently benefiting from retail energy competition. The Commission’s proposed reforms address the first issue. But they should do more to convince passive consumers to switch suppliers, and to protect poor consumers from high prices if they cannot – or will not – shop around.

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