Question

To ask the Secretary of State for Energy and Climate Change, what steps he is taking to improve competition in the wholesale energy markets.

In recent years we have seen significant improvements in day-ahead wholesale electricity market liquidity. In July 2014 just under 50% of GB final consumption was traded through day-ahead power exchanges. Two years earlier this figure was 28% and 3 years earlier 4.2%1. However, liquidity in forward markets is crucial and this remains a barrier to entry.

In April 2014 Ofgem introduced its reform package (‘Secure & Promote’2) to improve forward market liquidity and wholesale market access for independent market participants. The Government took backstop powers in the Energy Act 2013 to allow it to act should Ofgem’s liquidity reforms be delayed or frustrated.

Competition is at the heart of the Government’s Electricity Market Reforms and independent participants have responded positively to pre-qualification for the Capacity Market. Of the 11GW pre-qualified, this includes 7GW of large CCGT plant – more than 5GW of which is from independent generators. In addition the Off-taker of Last Resort has been introduced to address route-to-market concerns of independent renewables developers. We have also seen significant participation from non-integrated utilities in the early Investment Contracts awarded under the FID Enabling for Renewables process – only 2 of the 8 contracts have been awarded to integrated utilities.

Finally, the independent Competition and Markets Authority is investigating the GB energy markets and will determine whether there are any adverse effects on competition and, if so, what action is required to address them.

[1] Sources: Elexon, Nord Pool, APX Group

2 https://www.ofgem.gov.uk/publications-and-updates/wholesale-power-market-liquidity-decision-letter