UK election: LEBA chief defends UK market in face of Labour ‘reset’ pledge

Plans forged by the UK’s Labour Party to intervene in, or “reset”, the country’s wholesale energy markets are guided by objectives that are not only already being met but “have been in place for well over a decade”, according to the chief executive of an energy brokers’ trade body.

The raft of interventions, first laid out in a policy paper in November, include forcing 100% of day-ahead electricity trade onto an exchange or unspecified “pool” system, the publication of transactions conducted in the over-the-counter (OTC) market, and the ring-fencing of supply and generation business within vertically integrated companies.

The paper, Powering Britain: One Nation Labour’s plans to reset the energy market, sets out as its guiding principles the creation of a “genuinely competitive market”, the enabling of low-carbon investment, and end-user interests. It seeks to address a conventional model that it claims “reduces price transparency”.

But London Energy Brokers Association (LEBA) chief executive Alex McDonald told ICIS on Wednesday: “The key point is, a lot of the good things that this paper would propose are actually not only already happening, but have been in place for well over a decade.

“The brokered market is anything but opaque and anything but private,” he continued. “It all occurs on a common platform with open access and intense competition, employing common technology and common straight-through reporting to an open software affirmation platform entirely in the way that this paper would set out to propose.”

Tough stance

Of the parties that have a realistic chance of forming a government going into May’s general election, or of at least being the majority partner in a coalition, Labour has taken the toughest stance on energy policy.

Its election manifesto is yet to be published but party rhetoric suggests it will not diverge from the path set out last November in the event that it leads a government after May’s election.

While Labour’s proposed 20-month retail price cap stole the headlines, it looks certain to pursue the additional measures which would shake up how energy, particularly electricity, is traded in the UK.

The party cites the pan-Nordic market Nord Pool Spot as a desired model. It is built around a physically-delivered day-ahead auction alongside a financially-settled futures platform, settled against the day-ahead outturn.

But this has already been tried in the UK when exchange N2EX launched a financial futures platform alongside its physically-delivered day-ahead auction, and on this occasion, while the day-ahead auction attracted liquidity – as has rival exchange APX’s offering – the market proved reluctant to depart from the established OTC brokered model for forward curve trade.

No ‘major upheaval?’

A spokesman for shadow energy secretary Caroline Flint last month said the plans contained nothing that “would represent a major upheaval of the market’s practices” (see EDEM 20 February 2015).

Yet there is a perception in the market that the Labour proposals are to a large extent politically driven, because the party sees energy as a sensitive issue with the electorate that it must appear pro-active in tackling.

“You can’t put out a lobbying model that says ‘we would argue for all things to stay exactly as they are now’,” one source at a broker, who asked to remain anonymous, commented.

McDonald added: “It throws into stark relief the fact that, whilst some perceive reality to be something that needs fixing, in fact the reality may be far better, but unclear to those not familiar with the wholesale markets. Jamie Stewart