New electricity auctions could cut charges for hard-pressed families

Households could see their energy bills fall after one of the big six power firms broke ranks with its rivals by offering all its electricity for sale on the open market.

The plan by Scottish & Southern Energy to auction all its power is expected to boost transparency in the market and remove a barrier to entry for new suppliers. This may increase competition, cutting prices.

The big six companies currently sell most of the electricity they generate directly to consumers, with only a small amount traded wholesale.

Amid concerns that household bills are higher because of the lack of competition in the supply market, energy regulator Ofgem has proposed that utilities must auction 20 per cent of their electricity by 2013.

But SSE has announced it will go further by auctioning 100 per cent of its power on the UK’s day-ahead wholesale market by early next year. It will phase in auctioning from Friday, and aims to auction a quarter of its power by the end of November.

SSE is the second largest electricity generator in the UK. The firm said it expected “one or two” competitors from the big six to follow suit by Christmas. Alistair Phillips-Davies, SSE’s generation and supply director, said: “If other energy companies adopt a similar approach, this commitment could lead to a transformation in the wholesale electricity market in Britain.”

Labour leader Ed Miliband, who raised the “rigging” of the energy market in his party conference speech last month, welcomed the decision.

“Other energy companies should now follow suit to bring a fairer deal for consumers and end the rigged market,” he said.

Tom Lyon, energy expert at uSwitch.com, said the move could encourage new players to join the market.

“If it works then clearly it will be beneficial to households as competition should help drive prices down. But at the very least if other suppliers follow SSE’s lead it will bring greater transparency and marks a step change in the industry.”

Trisha McAuley, deputy director at Consumer Focus Scotland, agreed increased transparency and competitive pressure would “help to keep pricing fair for consumers in Scotland”. However, she added: “The bad news is that it is unlikely to make much difference to prices across the big suppliers in the short-term as they purchase energy well in advance.”

Independent domestic energy company First Utility described the move by SSE as “smoke and mirrors”. The firm said it would have a “negligible impact on encouraging competition” because the energy is only available on a day-ahead basis and the majority of power First Utility buys for customers is purchased up to two years in advance.