Britain’s “big six” power companies will be forced to trade electricity fairly and transparently with smaller rivals under plans to “break their stranglehold” on the market.
Energy watchdog Ofgem yesterday laid out plans to fine the firms, which include SSE and Scottish Power, if they don’t stick to rigorous pricing plans submitted two years in advance.
Andrew Wright, senior partner for markets at Ofgem, said: “Our aim is to improve consumer confidence and choice by putting strong pressure on prices through increased competition in the energy 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.”
He added that greater price transparency would assist investors when deciding to build new power stations, helping to ensure the lights stay on.
Meanwhile retail market reforms should benefit for consumers by creating a “simpler, clearer and fairer energy market”, he said.
Britain’s biggest energy firms, which also include Centrica, EDF Energy, E.ON and RWE Npower, generate 80 per cent of the UK’s electricity and supply around 95 per cent of it to their customers.
The country’s two largest independent power generators, Drax Power and GDF Suez Energy, will also be covered by the new rules, which have the backing of the UK government.
Under the proposals, the big 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 and will be obliged to trade at those prices, which will also be accessible to smaller firms.
Energy Secretary Edward Davey said an increased role for independent suppliers and generators was an ideal way to drive the competition that delivers better value for consumers and businesses.
“Ofgem’s proposals to increase transparency in the way electricity is traded will give independent generators a foothold in the UK energy market and encourage new players to invest,” he said. “I encourage companies to work with Ofgem to implement these proposals as swiftly as possible.”
But he warned the big six that the UK government was ready to pass laws to improve energy market liquidity “should Ofgem’s proposals be delayed or frustrated”.
Ofgem’s pressure on the industry has already produced results with the big six now trading at least 30 per cent of their output in the short- term markets, and measures strengthening its powers are making their way through parliament at Westminster.
The UK government is also changing the way it forces energy companies to reduce greenhouse gas emissions.
Harold Hutchinson, an analyst at Investec, said the government’s reforms could spell the death of the liberalised energy market as the state assumed control over the direction of investment.
“The proposed barrage of energy market review measures may simply substitute market risks, that corporates can manage, with the less certain world of myriad political interventions,” he warned.