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Many would agree that the monopoly of the Big Six on the industry is in serious need of re-assessment and Ofgem believe that greater market liquidity is the solution – this will allow more suppliers and generators to enter the market resulting in fiercer competition. As a result of pressure to increase market-liquidity from smaller market players, Ofgem released its report on ‘Wholesale power market liquidity: final proposals for a ‘Secure and Promote’ licence condition – Draft Impact Assessment’ 12th June 2013. The proposal made the following key recommendations:
Many smaller suppliers have responded positively to the proposals. Co-operative Energy hailed it as the beginning of the end to ‘the unfair practices often used to effectively block small suppliers out of the wholesale market’ whilst First Utility, view it as ‘a good first step in the right direction’ resulting in a ‘positive impact’ on their ability to ‘compete more effectively with the Big Six’ as they buy just 1% of their electricity on spot market and need access to longer-term contracts.
However, the Big Six criticism of the proposal was rife even before the final draft was published. During the consultation process Centrica stated Ofgem had ‘seriously underestimated’ the costs for obligated parties whilst E.on agreed that there were large financial risks involved. The estimated costs involved in the proposals implantation were calculated before the license condition design was known so their accuracy has come under heavy fire. RWE Npower has expressed concern that the proposal could have a negative effect on competition and the resulting financial impact to consumers due to Ofgem’s lack of ‘detailed impact assessment.’
There are also concerns about European regulations and the risks of how market makers could be exposed to these. Ofgem are quick to dismiss this as being a real danger as this could be avoided by contracting out the obligation. The response deadline for the proposal is 9th August 2013 and Ofgem hope to make a formal direction to license conditions shortly after in autumn and the changes to be fully implemented by 2014.
Greater market competition is desperately needed. With smaller suppliers often scoring highest in customer satisfaction surveys being able to offer keener prices and more variety can only be a benefit to our clients.
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