Energy regulator Ofgem has published plans to open up the electricity market to competition (release). The proposals would require the two largest independent power generators (Drax Power Limited and GDF Suezy Energy UK) to "trade fairly with small suppliers".
Under the proposals, the big six suppliers will have to post the prices at which they buy and sell wholesale electricity on power trading platforms up to two years in advance. They will be obliged to trade at these prices, which means independent suppliers and generators will have far more opportunities to buy and sell the power they need to compete effectively. Posting prices in this way will make wholesale prices clearer for all firms in the market.
There are concerns that such intervention could reduce the effectiveness of electricity markets, with prices set up to two years in advance being too rigid to respond to external shocks, forcing providers into selling at unprofitable margins.
The Adam Smith Institute's Sam Bowman said that this could institutionalise price collusion by preventing firms for undercutting rival deals.
Bringing everything 'out into the open' sounds nice, but businesses need to be able to operate privately if they're to be as competitive as possible.
Ofgem said that the industry has responsed positively in increasing liquidity in the wholesale market, as the big six (Centrica's British Gas, EDF Energy, E.ON, RWE's npower, Iberdrola's Scottish Power, and SSE) are now auctioning at least 30 per cent of their output in the near term market.
Edward Davey, secretary of state for Energy and Climate Change:
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.