Wednesday, June 12, 2013

Boost for green suppliers as Ofgem vows to 'break stranglehold of the Big Six'

Watchdog reveals plan to force large energy suppliers to disclose more information on wholesale prices
By James Murray ,
Green energy suppliers such as Good Energy and Ecotricity are among those firms likely to benefit from major reforms to the electricity market designed to make it easier for independent firms to challenge the "stranglehold of the Big Six".
Energy watchdog Ofgem today set out a series of new proposals that are intended to increase competition and liquidity in the electricity market, by making it easier for smaller independent suppliers to buy and sell power generated by the Big Six energy companies and two largest generator firms, Drax Power and GDF Suez Energy.
Under the new rules the Big Six suppliers will have to post information on the prices at which they buy and sell wholesale electricity on power trading platforms up to two years in advance, giving both independent suppliers and generators greater access to the forward market. Large power generators will also not be allowed to refuse any "reasonable request" from small suppliers to buy electricity.
"Posting prices in this way will make wholesale prices clearer for all firms in the market," Ofgem said in a statement. "The new licence conditions will be backed by Ofgem's powers to fine companies if they are in breach."
Ofgem said the Big Six had made some encouraging progress in introducing greater liquidity into the power market - they are each now auctioning at least 30 per cent of their power output in the near term market - but concerns remain that independent suppliers are struggling to access the forward market for power, forcing up costs for them and making it harder for them to break into the 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," said Andrew Wright, senior partner for markets at Ofgem, in a statement. "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."
His comments were echoed by Energy and Climate Change Secretary Ed Davey, who said the reforms would result in net benefits for energy customers.
"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," he said. "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."
The proposals were also broadly welcomed by Energy UK's Angela Knight, who said the industry would now work with Ofgem to assess the proposed reforms.
"Effective and transparent wholesale energy markets can deliver benefits for customers, and we understand and agree with the objective of creating a more competitive retail market," she said. "The energy industry agrees with Ofgem that more work needs to be done on these proposals and are keen to have further discussions... We need to consider carefully how the proposals join up as some have the potential to increase costs while others may well make it easier to see what is happening in the market."
Speaking to BusinessGreen, a spokeswoman for Ofgem said the proposed reforms would benefit green energy suppliers by giving them greater access to information on future wholesale power prices.
"These changes should make it easier for all independent suppliers, including green energy providers," she said. "It creates a level playing field for them."
Ed Gill at green energy specialist Good Energy hailed the move as a "step in the right direction", predicting it would make it easier for renewable energy firms to get into the forward market. "It gives you that longer term information on prices that allows you to balance your position better," he said, adding that it could also result in lower costs as companies are able to buy less power in the near term market.
However, he also warned that the changes failed to address wider concerns about the potential for the government's new Energy Bill to lock independent generators out of the market.
Many within the renewables industry remain concerned that the government's plans to introduce a new Contract for Difference financial support mechanism will make it harder for smaller generators to compete with large developers, potentially reducing liquidity in the market.
The Department of Energy and Climate Change has said it will consider the issues raised by independent generators, but with the Energy Bill currently working its way through parliament concerns remain that the reforms could inadvertently lock smaller generators out of the market.