REA FOCUS FEATURE
| UK Energy Market
Is the UK energy market ready to break with tradition?
New ways of doing business within the energy sector could alter the current status quo
E
nergy Industry experts know that the GB energy system was originally designed with a focus on a centralised electricity market, with large
generators connecting to a transmission system and national system balancing. In both gas and electricity production, the sources are typically remote from where the energy is used. Under this system, arrangements are based on a “supplier-hub” business model, with national suppliers at the heart of the energy market, managing the consumers’s relationship with the energy system. Little changed with the introduction of New Electricity Trading Arrangements (NETA) in 2002, despite the intention of creating the most competitive electricity market in Europe. Vertically integrated companies can balance risks across volatile wholesale electricity prices with trading and longer term supply contracts. This is how the largest 6 players in the supply market operate as they also own 70 percent of the generation market. Government stressed the aim for the system to be secure, affordable and sustainable – often known as the energy ‘trilemma’. There has been little progress on this, though: lack of investment decisions, little
44 REview Renewable Energy View 2015
growth in competition to keep energy costs down, no effective “market driven” drive to a low carbon future. Any progress that has been made has happened from government intervention, deeper regulation and by a wave of new players in the energy market, operating to different business needs and value drivers. These are collectively referred to by OFGEM, the GB energy market regulator, as delivering energy via “non- traditional business models (NTBMs)1 There was considerable government
.
intervention in the electricity market in 2014: Awarding of the first Contracts for Difference for low-carbon electricity
The pace of change may well quicken in
the next few years, particularly as Government begins to wake up to the opportunities.’
generation – see our article (on page 50 for more details) The first capacity market auction to
contract electricity generation and demand services – notionally to address electricity security concerns from deployment of variable renewable energy, but really to address lack of new investment in traditional fossil fuel generation All of this is still framed in essentially a
traditional view of how the UK energy system should work. But the system is changing in the meantime, meaning that many of the assumptions used are open to challenge. The pace of change may well quicken in the next few years, particularly as Government begins to wake up to the opportunities. In 2014 DECC published the UK’s first
ever Community Energy Strategy. The government also instructed Ofgem to
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