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The UK Electricity Market

The UK Electricity Market. Guy Buckenham Managing Director Wholesale Markets EDF Energy. The UK Electricity Market. Background Rising electricity prices Wholesale market trends Implications for customers Implications for suppliers. UK Electricity Market - Background.

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The UK Electricity Market

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  1. The UK ElectricityMarket Guy Buckenham Managing Director Wholesale Markets EDF Energy

  2. The UK Electricity Market • Background • Rising electricity prices • Wholesale market trends • Implications for customers • Implications for suppliers

  3. UK Electricity Market - Background • Competition long established in supply to customers (> 1MW since 1990; >100kW since 1994 based on half hourly metering, all customers since 1998 using profiles) • Development of wholesale market for England & Wales - Electricity Pool 1990, followed by NETA (New Electricity Trading Arrangements 2001) • Extension of wholesale market to Scotland (BETTA - British Electricity Transmission and Trading Arrangements, 2005)

  4. Falling electricity prices until 2002 • Until 2002, several years trend of falling prices • Increasing wholesale market liquidity • Influx of American companies into the UK electricity industry • Very keen price competition for large customers - typically annual contracts priced at wholesale market levels plus a small margin.

  5. Rising electricity prices since 2002 • Reasons: - • Increasing environmental costs - renewable energy, EU Emissions Trading Scheme, Large Combustion Plant Directive • Rising prices for primary fuels in world markets • Increases in gas prices driven by capacity constraints • Requirement for returns to support new investment in generation assets and infrastructure

  6. Wholesale market trends since 2002 • Effects of the collapse of Enron and TXU • Exit of American companies, partly replaced by financial institutions • Increasing convergence with European markets • Vertical integration • Falling wholesale market liquidity • Increased wholesale market volatility • Greater importance attached to risk management

  7. Implications for customers • Rising wholesale prices - no longer possible to achieve year on year reductions in energy costs • Volatile wholesale markets - increased risk of fixing price for large energy purchases at a single point in time • Environmental awareness - increased interest in “green” energy • Energy efficiency and load management • Longer term arrangements with suppliers • Importance of risk management

  8. Implications for suppliers • Traditional skills remain important but are no longer enough • Essential to understand customer requirements • Tailor approach and products to meet customer requirements • Product innovation e.g. “flexibility” contracts to help customers manage their risk

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