In a bid to reduce the monopoly the Big Six currently holds over the UK’s energy market, Ofgem has today revealed a three-stage plan to make the electricity market more open and transparent. The announcement is most significant for the smaller energy players, who have previously found it difficult to break the strong hold of the Big Six.
Ofgem published a detailed roadmap containing three objectives for which the Big Six suppliers will be required to meet. These objectives are expected to open the wholesale energy market while offering the opportunity for independent suppliers to buy wholesale power in the range of products they need.
The three objectives are:
1) Make a range of products which support hedging available
2) Introduce robust reference prices showing how much power would cost in forward markets
3) Create an effective short/near-term market
The roadmap follows on from Ofgem’s electricity market reform document published last March. In the 12 months since this was made available, some changes have become apparent in the electricity market; although Ofgem believes that there is more that needs to be done before the UK’s energy industry is faced with a fair playing field.
Ofgem has also proposed mandatory auctions to open the market further and to ensure all three of the objectives are actually met. These auctions would involve the Big Six selling a range of different products so independent suppliers would be able to hedge their positions more effectively on the forward markets and therefore compete on a more level playing field.
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.”
Meanwhile the new Energy and Climate Change Secretary, Edward Davey, said: “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 percent 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,” Davey concluded.
