UK Power Trading
sectors to come forward and take a more prominent role in generating and delivering power. With Britain’s plans to move to a low-carbon economy over the next 20-30 years, it faces significant and important changes in market structure. Renewable energy, by its nature, is much more decentralized and unreliable, often located in inhospitable places like the North Sea. But with Europe’s first electricity grid dedicated to renewable power – involving nine European governments – becoming a reality, together with the EU’s 20/20/20 pledges, governments and policy makers are finally getting serious.
Responding to Market Needs Part of OFGEM’s role is to ensure that Britain’s wholesale
energy and supply markets are competitive. Increasingly, the UK is becoming part of Europe’s energy markets and UK competitiveness depends largely on moving quickly to address the needs of the industry whilst attracting further liquidity and transparency – and ultimately enticing new entrants into the market. Take a look at other European markets. Germany for
example, traded eight times the amount of electricity it consumed in 2008, while the multiple in the UK was just 2.7 times, according to Prospex Research Ltd. Companies traded some 937 terawatt-hours of UK electricity, down 58% from 2,235 terawatt-hours in 2003, according to Prospex.3 While electricity trades did rise by 16% in 2008, it was
down to a few players to make that happen, including E.ON, one of the “big six” in the UK, which boosted electricity trading in the two years ended March 2009 by 68% to 4.7 times the amount it generated. The Nordic market, which trades 7.3 times the amount of
power it consumes, is a good example for the UK to follow, because of its wide variety of participants. These include US hedge fund manager Tudor Investment Corp., Russia’s OAO Gazprom and UPM-Kymmene Oyj, Europe’s biggest producer of paper for publications, all trading Nordic power futures, according to regional exchange Nord Pool ASA. Earlier this year, OFGEM announced plans in the UK to
increase the competitive pressures on large energy suppliers by improving wholesale market liquidity and challenge the contestability of the UK power market (entry barriers), making it easier for new companies to enter the power sector.4
The regulator argued that poor liquidity is a major
reason for the lack of strong competitive pressure from independent suppliers, and announced a series of proposed measures – among them an obligation for large generators to trade with independent or small suppliers.
26 worldPower 2010
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