SmartestEnergy have warmly welcomed SSE’s announcement, describing the decision as the most positive gesture shown by the Big 6 so far.
The company, which is the UK’s leading purchaser and supplier of independently generated electricity, believed this move will improve market liquidity whilst also increasing volumes traded in the forward market. They hoped the rest of the Big Six would follow suit and implement similar changes.
SSE’s intention to “phase in the auction of all of its electricity supply and purchase all of its electricity demand in the day-ahead market” represents a radical alteration to their current trading arrangements and signifies one of the biggest changes of approach to the GB electricity market in a decade.
Commenting on SSE’s announcement, Colin Prestwich, Head of Regulation at SmartestEnergy expressed how an improvement in liquidity along the power trading curve would assist the company in efficiently meeting its supply needs, where at present he felt that ‘liquidity is poor from around the season ahead’. Prestwich envisaged that this move would also increase confidence in the day-ahead market as ‘it would create a more tangible reference price’.
Currently, volumes traded in the UK day-ahead market compare unfavourably with volumes traded in European counterpart markets. However, Prestwich commented that since the phasing in of SSE’s proposal, there were ‘notable changes in the market already’ where auction traded volumes have increased at least threefold. In light of this, he hoped that the rest of the big six would adopt similar policies to SSE to avoid the large scale intervention proposed by Ofgem’s RMR.
When considering the regulator’s proposals, Prestwich commented how ‘one proposal is for a once a month auction. That would spread liquidity on to another platform, creating a hiatus in trade and actually push prices up around that period.’ If the Big Six were to follow suit, Prestwich described how this would be a market friendly solution to the issue, in line with SmartestEnergy’s general stance of favouring market friendly reforms.
SSE’s announcement comes amid a torrent of criticism facing the Big 6 on the subject of high energy bills. This is an issue that has become highly politicised, being raised at both the Labour and Conservative annual conferences in recent weeks. Colin Prestwich said that he hoped the move from SSE to help liquidity in the wholesale market would not get lost in the noise over high consumer bills generally.
For further information, visit https://www.smartestenergy.com or call +44 (0)20 7195 1050.