What are the barriers to energy market liquidity? You don’t know and you don’t care? Well, maybe it’s worth a little of your attention because as business energy users, it affects you and the future of your energy supply and billing in the UK.
Economists probably have a more technical term, be it ‘closed market’ or similar but we consider the energy market to be a disfunctional one – and one that is in need of the energy brokers such as Torse, making sense of it.
The energy market in the UK is dominated by the Big Six, British Gas, EDF Energy, E.oN, npower, Scottish Power and SSE and whilst competition remains tough between these companies, so does their status as an oligopoly – a dominant force with too much power and exclusivity over providing energy to UK businesses. So, whilst the UK may seem to have healthy competition between the major and not so major players, this is an illusion created by the Big Six for their own benefit.
New energy providers in the UK will always face tough competion in the following ways:
Imbalance at Cash Out: Energy trading arrangements penalise suppliers for any difference between purchased and consumed energy at the point of delivery. A small supplier with a growing customer base has higher imbalance and more cost.
There is a distinction between high prices triggered in response to supply and demand conditions and the legitimate operation of the market (which all well-managed participants should be able to manage the risk of) on the one hand and turbulent prices that are aggravated by structural distortions and one-sided rules on the other. There are also issues that arise from the dominance of incumbent players, who because they are vertically integrated are able to bypass the wholesale market for large volumes of the power they produce. This situation means that parties who cannot trade because of market illiquidity cannot obtain contracts or shaped products, and they are systematically exposed to “imbalance trading” at potentially penal prices that cannot be anticipated. This in turn further disadvantages the smaller players relative to their larger, integrated competitors. – Suppliers Forum 2012
You should care about energy market liquidity because the ability to break into the oligopoly could mean a potential reduction in billing through the ability to offer more flexible or tailored packages with the additional benefit of less overheads.
Whilst there is no quick fix to this difficult situation and there is a long way to go, you could put yourself ahead in the game in the following ways:
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