Tuesday 3 December was a record-breaking day. It didn’t make any headlines, and it went largely unnoticed even by the energy industry. But it was an important landmark nonetheless and showed that the energy market might not be as ‘broken’ as it has been described.
A common accusation levelled at the energy industry is that there isn’t enough liquidity and transparency in the wholesale electricity market.
The story goes that the big vertically integrated companies sell the power they generate to themselves behind closed doors, potentially making it difficult for smaller suppliers to access the power they need and making it unclear how much big suppliers are paying.
I agree that liquidity and transparency are both vitally important to the healthy functioning of the market and support any steps that help improve them.
One idea to be tabled in the Labour Party’s recent energy ‘green paper’ has been the reintroduction of a ‘pool’, a form of trading which existed (and was scrapped) in the late 1990s.
The idea would be to require companies with both generation and supply businesses to sell all of the power they generate into public auctions and then buy back the power they need to supply their customers through the market.
I think the intent is absolutely right, but I also believe that a very practical solution is close at hand.
Back in October 2011, to help improve liquidity and transparency we broke new ground by committing to auction 100 per cent of the power we generate and 100 per cent of our demand in the open, day-ahead market.
This marked a big change to how power is bought and sold. By April 2012 the daily volume of power traded in the N2EX day-ahead market was up 300%. Other companies have followed our lead to varying degrees and this is making a huge difference to liquidity in the GB market, helping suppliers big and small get the power they need at the fairest market price.
And, on Tuesday 3 December, the N2EX market set an all-time volume record, with over 500 GWh traded in a single day. That’s equivalent to the output of almost 30 nuclear power stations. Traded volumes so far this year are up 50 per cent on 2012 levels. OK, it’s not front-page material, but it matters.
It matters because, independent of any legislative or regulatory intervention, the market is responding to stakeholders' views. The burgeoning day-ahead market now provides a robust index price, helping to improve transparency.
With all our generation and all our demand going through the public market and fully accounted for in our financial reporting, there’s, quite rightly, nowhere to hide.
And with more power being traded in the open market than ever before, smaller independent suppliers know they can access the electricity they need to supply their customers. It offers them volume, but also, critically, shape as well.
We believe that if all other market participants followed the lead that has been set - preferably voluntarily but through legislation if necessary - this would help deliver the more liquid, transparent market we all want.
It would also be very close to the concept of a pool that is currently being proposed. Of course, there is still more to be done and I would be surprised if the 3 December record stands for very long. But it is indicative of the real improvements happening organically in the market and I'm proud to be a part of it.
This article first appeared on Utility Week here: http://www.utilityweek.co.uk/