The energy regulator Ofgem has published its proposals for opening up the electricity market and it’s hoped that these changes will lead to cheaper business electricity prices.
The proposals aim to give small independent energy suppliers “a more level playing field” on which to compete with the “Big Six” energy providers – British Gas, E.ON, EDF Energy, SSE, npower and ScottishPower and the two biggest independent energy suppliers, Drax Power Ltd and GDF Suez Energy UK.
The proposals will see the Big Six energy providers having to post the prices at which they buy and sell wholesale electricity up to two years in advance. They will then have to trade at these prices, giving independent suppliers more opportunity to buy and sell the power they need to compete against the Big Six.
At the moment the Big Six auction up to 30% of their energy for immediate usage (the spot market) whereas prices in the forward market – for delivery of energy months or years ahead – are not very transparent. The new regulations will see energy companies posting the prices at which they buy and sell energy up to 2 years ahead – increasing transparency.
The Big Six energy companies currently generate 80% of the electricity in Britain and supply around 95% of this energy to their customers.
The new proposals will mean large energy generators will not be able to refuse reasonable requests by smaller suppliers to buy energy. This energy will have to be sold at a fair price and negotiations will have to be fair at all times.
Senior Partner for Markets at Ofgem, Andrew Wright, said “Our aim is to improve consumer confidence and choice by putting strong pressure on prices through increased competition in the energy market. Ofgem’s proposals will break the stranglehold of the big six in the retail market and create a more level playing field for independent suppliers, who will get a fair deal when they want to buy and sell power up to two years ahead”.
He added, “Greater price transparency will assist investors seeking to build new generation plant and help secure supplies for consumers, who are also set to benefit from a simpler, clearer and fairer energy market thanks to our retail market reforms”.
Secretary of State for Energy & Climate Change, Ed Davey, said “I want our energy market to be as competitive as possible. An increased role and level playing field for independent suppliers and generators is precisely what will help drive the competition that delivers better value for consumers and businesses. Independent suppliers will have greater access to the power generated by the Big Six and other large power producers, enabling them to purchase and deliver cheaper energy to consumers. Ofgem’s proposals to increase transparency in the way electricity is traded will give independent generators a foothold in the UK energy market and encourage new players to invest”.
The changes are expected be in place early in 2014. Whether this increased competition in the electricity market will mean lower business electricity prices remains to be seen.