The UK’s second largest energy supplier, SSE is promising the biggest change in the electricity market in a decade when it begins offering its electricity for sale to any household supplier later this week, reports the Financial Times.
Currently, the vertically integrated ‘big six’ energy companies sell the majority of the electricity they generate directly to consumers, however, there is a growing demand to “break the dominance of the big energy companies” by forcing them to auction all of their electricity on the open market.
SSE has now broken ranks with its rival utilities and will do exactly that by auctioning 100 per cent of its power on the UK’s day-ahead wholesale market. It will buy all the electricity required for its customers from the same source.
SSE will phase in auctioning, starting on Friday, with the aim to auction 25 per cent of its electricity by the end of November and 100 per cent by early next year.
Ian Marchant, chief executive of SSE, told the Financial Times that he expected “one or two” of his competitors among the big six utilities to follow suit by the end of the year.
At present, the big utilities use their own power stations to generate most of the electricity which they supply to British homes, so only a relatively small surplus is traded on the wholesale market – the day-ahead market handles only 40 GWh per day, according to the report in the Financial Times.
However, they are under intense political pressure to consider radical changes that will remove the barriers to entry for new suppliers, which may help push down consumers’ bills through greater competition.
Ofgem (the Office of Gas and Electricity Markets) had opted on a partial reform that would force the utilities to auction 20 per cent of their electricity by 2013, but SSE has decided to go further and faster.
Marchant told the Financial Times that it would become easier for small competitors to enter the household supply market. “It should give people more confidence in wholesale prices and a key barrier to entry is confidence in your input costs. It’s not designed to encourage entry, but it will – it removes a barrier,” he said.
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