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Ofgem eyes long- and short-term mandatory electricity auctions

15 Nov 2011 15:46:35 | edem

Staff members of British energy regulator Ofgem said on Tuesday that the body is eyeing both long- and short-term contracts for its proposed mandatory electricity auction and could raise the volumes sold.

Last March, Ofgem announced new tough proposals that would force the UK's "big six" electricity suppliers to auction 10-20% of their power generation output (see EDEM 21 March 2011).

Speaking to the cross-party Energy and Climate Change Committee on Tuesday, Ofgem CEO Alistair Buchanan said the regulator was considering making the figure greater than the 20% roof mentioned last March.

Andrew Wright, senior markets partner at Ofgem, added the regulator is looking at introducing different packages for short- and long-term products, which is more radical than was originally thought.

Different types of products are also considered so baseload, peakload and other shapes might all be in the mix.

Increasing liquidity

The Commons parliamentary watchdog has already lobbied for a higher percentage to sold in the auctions (see EDEM 19 October 2011). But Wright said that a higher figure would not necessarily be better.

"It's about getting the right products at the right time," said Wright. He added that each product to be auctioned would be flexible and so the mandatory percentage could be changed overtime.

Wright added that SSE's move to phase in the auction of all of its generation on the N2EX Day-ahead exchange market was welcome (see EDEM 12 October 2011), but the regulator does not have time to hold off on its own auction plans to see how this initiative develops.

"We could be waiting up to three years to see how it works," he said.

Auction format

The Ofgem staff said that two types of formats are being looked at for the auction process, with the aim being that enough liquidity is found in each product to establish a reference price. One option is to set up a reserve price; the other option is to develop a must-sell price.

Setting a reserve price would be complicated because a formula would be needed to determine what price would be unreasonable. Ofgem aims to release a paper on this in December. FOR

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