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UK electricity participants criticise Ofgem’s auction proposal

19 Apr 2012 17:51:46 | edem

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UK electricity market participants voiced concerns to British energy regulator Ofgem that they believe it is planning to implement mandatory auctions of wholesale electricity generation, regardless of the outcome of an industry consultation, at a meeting on Wednesday.

The regulator is proposing the Big Six UK utilities - Centrica, EDF Energy, E.ON, RWE npower, ScottishPower and SSE - auction 25% of their electricity generation to jump-start liquidity on the forward curve (see EDEM 22 February 2012).

The watchdog originally proposed forcing them to auction 20% of their generation (see EDEM 21 March 2011).

Despite running a consultation on the auction plan, which ends on 8 May, UK power market participants alleged at the meeting that Ofgem is set on introducing long-term mandatory auctions, regardless of industry opposition.

A source at the meeting summed up industry frustration: "The whole industry sat there saying we don't want this, and they're still pushing mandatory auctions."

Ofgem did not respond to questions from ICIS.

Opposition

Little in the way of consensus between the regulator and participants exists, sources said, with both larger and smaller companies reportedly criticising the proposals.

And despite Ofgem claiming the mandatory auctions would support smaller players, there was little audible support reported from companies that fell into this range, sources said.

Some sources believe the uncertainty created by Ofgem's proposals combined with the Electricity Market Reform and EU regulation is distracting and draining participation on the stagnant UK market.

The Big Six will be hit hardest by the measures if implemented, and some were reported to be vocal in their opposition to the proposals.

A mid-sized representative summed up the situation for the big utilities.

"We're not going to be hamstrung by the auctioning, but I can imagine that the Big Six are in a bit of a corner and there's not a lot they can do," the source said.

Another industry insider who was consulted separately by Ofgem voiced concerns about the regulator's desire for mandatory auctions.

"Auctions don't help if no-one needs to buy and sell, but Ofgem has very little access to key decision-makers in government they're trying but if people needed to trade, we wouldn't need the auction." Ofgem is set to host another meeting on 2 May with market participants, a UK trader said, six days before the consultation closes. TF

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