Energy Bill has extensive experience working for suppliers, TPIs and other energy companies. Still employed in the industry, he writes exclusively for ELN on the energy issues of the day.
Having successfully dipped its toes in the water last year with a proposal for an energy price freeze, Labour donned its togs and jumped right in last week, proposing a complete restructure of the market. Proving that there’s nothing new in energy, its new idea is a very old one – generators and suppliers should trade via a pool.
I remember the first pool, the market structure that came in with competition in the 1990s. Back before the internet and the paperless office, we used to have to lug around our own personal copies of the Pool Rules, which set out how the market was designed to work.
Working for a large integrated supplier at the time, we loved the Pool. Prices were set in a half-hourly auction and we had an optimisation team at work ensuring that we were able to run our power stations and hedge against our supply portfolio to maximise profits.
The Pool was drained in 2001 because it was held to be acting in the interests of the large vertically-integrated supply companies rather than the customer. Does that sound familiar?
It should because that’s exactly what Labour are saying about the current market.
However, when the industry jumped out of the Pool, a new set of rules was introduced and the suppliers just went to work in the same way following those rules instead. Labour claims to want to stop the Big Six shuffling profits around within their groups. It believes that they are understating their profits as a supply business or possibly moving money around via their trading arms.
They may well be but the introduction of new trading arrangements won’t change that – it will just change the way in which they might do it.
Labour may be willing to dive into the pool but it looks like they’re going off the high board into the shallow end. That never ends well.