Ofgem proposes mandatory utilities auctions
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Under the proposals, the Big Six could be forced to sell 25 per cent of their electricity supply to independent suppliers and new entrants to the electricity market
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22/02/2012
Energy regulator Ofgem has today set out a detailed roadmap to open up the electricity market for independent suppliers by making it easier to compete with the “Big Six” energy companies.
The energy regulator proposed using mandatory auctions of wholesale power “to force the pace of change” towards a more transparent competitive electricity market.
Under the proposals, the Big Six (EDF, npower, SSE, British Gas, E.On and Scottish Power) could be forced to sell 25 per cent of their electricity supply in a range of power products to independent suppliers and new entrants to the electricity market.
A consultation document can be found here.
In November 2011, E2B Pulse reported that inadequate liquidity was providing a major obstacle to competition in the wholesale energy markets. Liquidity, defined by energy regulator Ofgem as “the ability to quickly buy or sell a desired commodity or financial instrument without causing a significant change in its price and without incurring significant transaction costs” is an important feature of a well-functioning market.
Ofgem's Senior Partner for Markets Andrew Wright said: “Since Ofgem announced that the Big Six companies needed to change radically their ways, they have made progress. We have seen pledges to simplify tariffs, moratoriums on door-step sales and now auctioning of power in the short-term market. This is to be welcomed. However, the needs of independent suppliers have not yet been met and this is why Ofgem is proposing to introduce mandatory auctions to force the pace of change and increase transparency.”
“Suppliers do not have to wait until the auctions are in place to act. Ofgem has set out clearly the three objectives we want met and energy suppliers now have the chance to take the lead and deliver this increase in liquidity.”
Energy and Climate Change Secretary Edward Davey welcomed the news:
“I welcome Ofgem’s proposals and the momentum that is building behind badly-needed reforms of our energy market. Consumers will get the best deals when suppliers face tough competition and that is what both government and regulator are working to achieve. Right now only six big companies have 99 per cent of domestic customers - energy bill payers in this country need more and better choices.
“We’ve cut red tape for small suppliers to give them a leg up into the market, and we are also working with the Ofgem to deliver clearer bills and simpler tariffs. We have strengthened Ofgem’s own hand by making it harder for energy companies to block licence changes, and we are looking at beefing up Ofgem’s powers further to ensure fairer outcomes for consumers.”
Juliet Davenport, CEO and founder of Good Energy, said Ofgem's recognition of access to wholesale energy was welcome.
“If we want small suppliers to really grow to challenge the Big Six, then improving their access to wholesale power is absolutely vital," she said.
“But this has to be done in the right way, otherwise it will be of no use to anyone at all. It’s not just about the total amount of power available – it’s about whether suppliers can get to it. They need to be able to buy power in small enough sizes so that it is of use and so that they can afford it in the first place.”
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