First year of Neta a success, says UK regulator

27 March 2002 – UK power regulator Ofgem has hailed as a success the introduction of the New Electricity Trading arrangements (Neta) in England and Wales, which marks its first anniversary today.

“NETA has been operating successfully for one year and has achieved its main objective of replacing the former inflexible centralised arrangements that existed under the Electricity Pool. We are now beginning to see the impact of Neta on customer prices – strongly in the industrial and commercial markets, and we expect to see the domestic market follow suit,” said Ofgem’s chief executive, Callum McCarthy.

The new arrangements have meant that electricity is traded much like any other commodity, with over 98 per cent of sales taking place through traded markets. Since its introduction, wholesale prices have fallen by almost 40 per cent.

This effect has been a positive one for consumers but has left a number of generating companies with uneconomic capacity, some of which is being taken offline. Earlier in the week, TXU Europe confirmed it would be “mothballing” units in the UK with total capacity of 711 MW.

Ofgem has been pleased with the way Neta has bedded in. “The market has developed rapidly and early issues have been addressed. This is down to generators, traders and customers gaining greater experience of operating in the new market, as well as the impact of flexible governance arrangements which have resulted in Ofgem-approved modifications to the market rules.”

But not everyone shares the regulator’s enthusiasm. Speaking at a conference run by the Association of Electricity Producers today, Steve Garrett from independent utility Slough Heat and Power said, “Small companies have lost confidence in the market.”

Neta has been very costly to put in place and is a hostile environment for small players. Its operation to date appears to be a barrier to future investment and has done nothing to promote renewable energy and combined heat and power, despite the government’s support for these sources.

Ofgem announced measures today intended to streamline licensing applications by power producers on the recommendation of its Consolidation Working Group. Ofgem’s Managing Director for Customers and Supply, John Neilson said, “The Consolidation Working Group found the licence application process to be cumbersome and taking longer than necessary. This review marks a first step in seeing if we can simplify the system, so as not to deter new entrants.”

Ofgem will be tackling issues surrounding the transmission network and extending the arrangements into Scotland to finish the job of reforming the electricity market begun by the implementation of Neta.

Ofgem will publish a detailed review of NETA after one year of operation later this year.

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