Supplier switching is the most direct way for consumers to take part in the liberalised energy market but, obviously, not the only one.
Other, equally important, consumers’ roles are:
- prosuming (i.e. the self-generation and self-consumption of energy (also partial) and
- demand response understood as any behavioural or other actions undertaken by households in response to (any kind of) signal from the market (ACER/CEER Annual Report of 22 October 2018 on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2017 (Consumer Empowerment Volume), p. 25).
It should also be noted that consumer’s activity in the liberalised market can cover also product switching, if the existing supplier’s offer is sufficiently wide and flexible.
Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market in electricity (recast), Article 12, Recitals 33, 34
Right to switch and rules on switching-related fees
1.Switching supplier or market participant engaged in aggregation shall be carried out within the shortest possible time. Member States shall ensure that a customer wishing to switch suppliers or market participants engaged in aggregation, while respecting contractual conditions, is entitled to such a switch within a maximum of three weeks from the date of the request. By no later than 2026, the technical process of switching supplier shall take no longer than 24 hours and shall be possible on any working day.
2.Member States shall ensure that at least household customers and small enterprises are not charged any switching- related fees.
3.By way of derogation from paragraph 2, Member States may permit suppliers or market participants engaged in aggregation to charge customers contract termination fees where those customers voluntarily terminate fixed-term, fixed-price electricity supply contracts before their maturity, provided that such fees are part of a contract that the customer has voluntarily entered into and that such fees are clearly communicated to the customer before the contract is entered into. Such fees shall be proportionate and shall not exceed the direct economic loss to the supplier or the market participant engaged in aggregation resulting from the customer's termination of the contract, including the costs of any bundled investments or services that have already been provided to the customer as part of the contract. The burden of proving the direct economic loss shall be on the supplier or market participant engaged in aggregation, and the permissibility of contract termination fees shall be monitored by the regulatory authority, or by an other competent national authority.
4.Member States shall ensure that the right to switch supplier or market participants engaged in aggregation is granted to customers in a non-discriminatory manner as regards cost, effort and time.
5.Household customers shall be entitled to participate in collective switching schemes. Member States shall remove all regulatory or administrative barriers for collective switching, while providing a framework that ensures the utmost consumer protection to avoid any abusive practices.
Smaller customers are still being charged a broad range of fees directly or indirectly as a result of switching supplier. Such fees make it more difficult to identify the best product or service and diminish the immediate financial advantage of switching. Although removing such fees might limit consumer choice by eliminating products based on rewarding consumer loyalty, restricting their use further should improve consumer welfare, consumer engagement and competition in the market.
Shorter switching times are likely to encourage consumers to search for better energy deals and switch supplier. With the increased deployment of information technology, by the year 2026, the technical switching process of registering a new supplier in a metering point at the market operator should typically be possible to complete within 24 hours on any working day. Notwithstanding other steps in the switching process that are to be completed before the technical process of switching is initiated, ensuring that it is possible by that date for the technical process of switching to take place within 24 hours would minimise switching times, helping to increase consumer engagement and retail competition. In any event, the total duration of the switching process should not exceed three weeks from the date of the customer's request.
Rules for the supplier switching have a direct and unquestionable bearing on the competition on the energy market, hence, are subject to the regulators’ constant interest.
Maximum switching period
According to the rules applying in the EU Internal Electricity Market a supplier switch should take no longer than three weeks. Recommendation of ACER's "Bridge to 2025" is to enable consumers to switch within 24 hours.
Results of the survey published in the ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Gas Markets in 2015, Consumer Protection and Empowerment in November 2016 (p. 40) evidenced the following facts:
- in practice, the average duration of switches in Europe was around 14 working days (13.5 days in electricity and 14 days in gas), with nearly all jurisdictions complying with the prescribed limits,
- in France, the practical switching time seem to take only one day in electricity and four days in gas, and in Portugal, switching took four days in electricity.
Starting point for the switching period
The EU rules do not indicate the criteria to measure the duration of a switch. The ACER suggests that in order to compare the duration of switches meaningfully, it is important to take into account that different national criteria are applied to measure this.
In eleven jurisdictions in electricity and nine in gas, the switching period starts when the new supplier transfers data to the Distribution System Operator (DSO) or the relevant entity managing the switching. In this situation, it is important that the new supplier send the switching request to the DSO as soon as possible, respecting the consumer ́s wishes.
About half of the countries consider the switching period from the consumer's point of view: the switching period starts when the new contract is signed (eight countries in electricity/four countries in gas), or when the consumer asks for a switch (six and four, respectively). In this context, according to the ACER, it would be desirable to define a common starting point for the switching period to guarantee all European consumers similar treatment when switching supplier.
The aforementioned ACER/CEER Annual Report of 22 October 2018 made some recommendations with respect to the choice of the precise switching date. As the regulators said, to empower consumers, the switching time should be as short as possible and switching should be possible on any day during the week. Therefore, the switching date should be as flexible as possible, adapting to consumer preferences (e.g. when the old contract expires, instead of as soon as possible).
Specific national legislation determines when switching can be executed. In the electricity sector in 15 EU Member States, both consumers and suppliers can choose the precise switching date while in 5 Member States only consumers can choose and in 6 Member States it is not possible to choose the precise switching date at all. The situation is similar for gas.
Period for the delivery of the final bill
In almost all the European Union Member States, the regulation establishes that consumers should receive their final bill within six weeks after switching supplier. According to ACER:
- France, Croatia, Hungary and the Czech Republic have shorter periods,
- in practice, the average time to receive the final bill in Europe is around five weeks (5.1 weeks for electricity and 5.3 weeks for gas).
Possibilities for halting the supplier switch
Switching is the most powerful tool to exert influence on the energy market, therefore, according to the energy market regulators the consumer's desire to switch should be respected by all market actors.
CEER Electricity and Gas Retail market design, with a focus on supplier switching and billing, Guidelines of Good Practice (Ref: C11-RMF-39-03) of 24 January 2012 stated as an overall principle that there should be no/minimal possibilities to stop an initiated switch. However, in order to prevent unwanted switches, there should be clearly defined rules on the information needed to perform a switch.
The ACER differentiates between:
- reasons to not initiate a switch (for procedure reasons or mistakes, to prevent unwanted switches), and
- reasons to stop a switch (when the old supplier /DSO have the possibility to stop a valid switch).
If the new supplier sends incomplete or incorrect data to the DSO, the DSO may reject the request. In such a case, a switch is considered as "not initiated". According to ACER, excluding procedural reasons, about half of EU Member States consider an initiated switch unstoppable.
Some jurisdictions permit blocking of an initiated switch in exceptional cases. Sometimes unpaid bills with the old supplier or unpaid bills with the DSO are considered a valid reason to stop a switch. Some other jurisdictions, such as Belgium, Italy or Portugal, apply this rule only in exceptional cases. In Ireland in case of liabilities to the old supplier the new supplier is given a warning, and has the possibility to stop the switching process. In several EU Member States (six in electricity and five in gas) the old supplier also has the possibility to stop a switch in case a fixed contract is not subject to termination at the time of the switch. Otherwise, there are some country-specific reasons for halting consumer switching.
The said ACER/CEER Report of November 2016 refers in that regard to the following examples:
- the electricity system operator shall reject the change of supplier if the new supplier fails to fulfil the obligations set out by the act (Slovenia);
- the access point is more than 20 years old and fails a review (Spain – electricity);
- the supplier can be required to pay a financial security.
If the consumer cannot ensure financial security, the supplier has the opportunity to quit the agreement within three days after the consumer receives a warning from the supplier (Denmark – electricity). Regarding the case of violation of contract terms or debts, CEER's Guidelines of good practice on Retail market design suggest that any dispute between consumer and supplier should be processed within the legal framework of contractual law, and therefore should not constitute a valid reason to stop an initiated switch. However, differences in legislation among Member States may result in different practices regarding the possibilities to stop an initiated switch.
ACER recommends, in such cases, Member States should carefully list exemptions for when, and by which market actor(s), it should be possible to stop.
The contractual terms, such as having a very small window of opportunity to switch, or the option to stop a switch by the old supplier, may result in consumer lock-in, restricting consumer choice.
Rules on the supplier’s switching in the Winter Energy Package
Article 12 of the European Commission Proposal for a Directive of the European Parliament and of the Council on the internal market for electricity (recast) on common rules for the internal market in electricity (recast) of 30 November 2016 (COM(2016) 864 final 2016/0380 (COD)) envisions the following rules:
1. customer wishing to change supplier is entitled to such change within three weeks (while respecting contractual conditions),
2. customers are not charged any switching-related fees, however, the EU Member States may choose to permit suppliers to charge contract termination fees to customers willingly terminating fixed term supply contracts before their maturity, subject to cumulative conditions:
- such fees may only be charged if customers receive a demonstrable advantage from these contracts,
- such fees must not exceed the direct economic loss to the supplier of the customer terminating the contract, including the cost of any bundled investments or services already provided to the customer as part of the contract.
The Report of the European Parliament’s Committee on Industry, Research and Energy (ITRE) of 27 February 2018 on the proposal for a directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) (COM(2016)0864 – C8-0495/2016 – 2016/0380(COD)) proposed the additions of paragaraph 1a and 4a to the said Article 12 - as follows:
“1a. By 1 January 2022, the technical process of switching supplier shall take no longer than 24 hours and shall be possible on any working day.”
“4a. Household customers shall be entitled to participate in collective switching schemes. Member States shall remove all regulatory or administrative barriers for collective switching while providing a framework that ensures utmost protection for consumers to avoid any abusive practices.”
In Article 12(2) the ITRE Committee proposed that the prohibition of charging any switching-related fees should apply only to final customers (and not all customers as the European Commission envisioned in its initial draft).
The exemption from the above rule has been amended by the ITRE Committee in the aforementioned Report of 27 February 2018 as follows (Article 12(3) of the draft Directive):
“3. By way of derogation from paragraph 2, Member States may choose to permit suppliers to charge contract termination fees to final customers willingly terminating fixed term, fixed price supply contracts before their maturity provided that the customer has willingly entered into such a contract. Such fees may only be charged if final customers receive a demonstrable advantage from these contracts. In addition, such fees shall be proportionate to the advantage provided to the customer and shall not exceed the direct economic loss to the supplier of the final customer terminating the contract, including the cost of any bundled investments or services already provided to the final customer as part of the contract. The burden of proof of the direct economic loss shall be on the supplier and shall be monitored by the national regulatory authority.”
ACER and CEER in the Presentation of 24 October 2017 - The 6th Annual Report on Monitoring the Electricity and Natural Gas Markets, Main insights ACER/CEER, The 6th Annual Report on Monitoring the Electricity and Natural Gas Markets, Main insights recommended that (p. 43):
- as well as the three-week maximum switching duration, consumers must be informed about when the switching period starts,
- the 24h-technical switching process could be completed by 2022.
Monitoring Report on the Performance of European Retail Markets in 2018, CEER Report, Monitoring Retail Markets WS of Customers and Retail Markets WG, Ref: C19-MRM-99-02, 04 November 2019, p. 8, 9
(13) Well-functioning retail markets require the involvement of consumers in market activities. This involvement mainly refers to switching activities. External switching is defined as the voluntary action by which a customer changes his supplier. For electricity, the highest external switching rate for household customers in 2018 was reported by Norway (21,4%), which implies an even higher switching rate than the year before (18.8%). Other countries with a relatively high switching rate for electricity household customers by metering points in 2018 (at least 10%) are Finland, Germany, Great Britain, Ireland, Portugal, Spain and Sweden. With exception to Croatia, Finland, Poland and Portugal, switching rates in 2018 were higher than the average of the years from 2013 to 2017.
(14) The highest gas switching rate for 2018 for household customers was reported by Belgium (22%), the lowest by Bulgaria (0%) and Luxembourg (0.04%). Countries besides Belgium with a relatively high switching rate in 2018 (at least 10%) are France, Great Britain, Ireland and Portugal. Different to electricity, the comparison between the latest developments in 2018 and the five preceding years does not show a clear trend. In some countries switching rates for gas household customers in 2018 were higher than the average from 2013 to 2017, while in some countries it is the other way around.
(15)Norway is the country with the highest increase in external switching rates in electricity, compared to the previous year (+2.6%). A significant increase was reported by France (+2.0%). This long-term trend is consistent with the rapid increase in the number of active suppliers since 2014, which has led to greater variety of products and sustained price differentials in the market and resurgence in direct sales activities. In addition, various information campaigns have contributed to raising consumer awareness about the benefits of engagement, with the internet becoming the main tool for consumers to compare tariffs and switching possibilities.
(16)The countries with the highest increase of the external switching rate in gas (at least 1%) compared to the previous year (2017) are Czech Republic, France, Ireland and Italy. In France this can be explained by customers switching from regulated tariffs to market offers in gas.
(17)Internal switching is defined as a change of product or contract with the same supplier (renegotiation/choosing a different option). Like external switching rates, the level of internal switching is quite different between MS. In 2018, the highest rates for electricity are reported by Great Britain and Poland, the lowest rate by Luxembourg. In gas, the highest rate is reported by Great Britain (32,5%).
(18) Only Bulgaria, Poland, Portugal and Spain reported any switching activities for regulated prices in 2018.
(19)Similar to the household segment, switching rates for non-household customers differ significantly across MS. For electricity, countries with a high switching rate are Czech Republic, Italy, Lithuania, Poland. Portugal, and Spain (at least 25%). Compared to electricity consumers, gas consumers switched obviously more above their average in the last years. This can be explained by the price developments in both sectors last year: the ACER-CEER Monitoring Report 2018 indicates that, while the electricity prices for industry fell on average, it increased by 13,4% in the gas sector.
Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market in electricity (recast), Article 12, Recitals 33, 34
Report on the proposal for a directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) (COM(2016)0864 – C8-0495/2016 – 2016/0380(COD)), European Parliament, 27 February 2018, Committee on Industry, Research and Energy
Proposal for a Directive of the European Parliament and of the Council on the internal market for electricity (recast) on common rules for the internal market in electricity (recast), 30.11.2016, COM(2016) 864 final 2016/0380 (COD), Article 12
ACER/CEER Annual Report of 22 October 2018 on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2017 (Consumer Empowerment Volume), p. 25
ACER/CEER, The 6th Annual Report on Monitoring the Electricity and Natural Gas Markets, Main insights ACER/CEER, The 6th Annual Report on Monitoring the Electricity and Natural Gas Markets, Main insights