ENERGY regulator Ofgem recently announced a raft of measures to improve liquidity and transparency in the energy market.
What does greater liquidity and transparency mean? Liquidity means being able to buy and sell easily and it supports competition in energy because smaller players are able to access what they need to compete at scale. Transparency means customers can see what’s going on and know they are getting a fair deal.
Ofgem’s measures are complex, but the guiding principle is to require the largest suppliers and generators to trade fairly with smaller, independent suppliers and provide more details of the prices at which they trade electricity in advance.
Ofgem will also revamp the mandatory reports on profits in generation and supply, published every year by the large firms, to make them “more robust, useful and accessible”. SSE is happy to work with anyone interested in making the market better for customers, and it’s why we’re already on the front foot on some of these issues.
For example, in 2012, we became the first energy company to trade 100 per cent of the power we generate and 100 per cent of our demand through an open energy trading platform called the “day-ahead auction”. This has helped to transform liquidity in this market.
Likewise we already help small suppliers by making it easier for them to secure the energy they need to supply their customers and grow market share. By shouldering some of their credit risk, SSE helps small suppliers make bigger forward purchases.
But it’s not enough for a market to be competitive – it needs to be trusted too. As a UK-listed company, our accounts are more accessible than others, but greater transparency is still needed.
All major energy firms are required to publish a Consolidated Segmental Statement (CSS) – which summarises revenues, costs and profit across generation and supply. These will now be reviewed by independent auditors, thus giving customers another layer of confidence in the process.
Ofgem is driving progress towards a more liquid and transparent market. We’d like them to go further and extend the measures to cover all the established players in the market. But the direction of travel is the right one.
• Alistair Phillips-Davies is the chief executive of SSE.