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Ofgem tears down barriers to energy competition
Published:  26 February, 2014

From 31 March new rules come into force meaning the six largest suppliers and the largest independent generators will have to trade fairly with independent suppliers in the wholesale market, or face financial penalties.

The six largest suppliers will also have to publish the price at which they will trade wholesale power up to two years in advance. These prices must be published daily in two one-hour windows, giving independent suppliers and generators the opportunity and products they need to trade and compete effectively.

Ofgem CEO Andrew Wright said: “Our rules for a simpler, clearer, fairer energy market are coming into force, meaning that it is getting easier for consumers to pick out the best deals. Now we are also breaking down barriers to competition for new entrant suppliers. These reforms give independent suppliers, generators and new entrants to the market, both the visibility of prices and opportunities to trade that they need to compete with the largest energy suppliers. Almost two million customers are with independent suppliers, and we expect these reforms to help these suppliers and any new entrants to grow.

“We also want to ensure that information on revenues, costs and profits of the largest energy suppliers is as clear as possible for consumers. No other European regulator has gone as far as Ofgem in making this information accessible for consumers. Now we are taking further steps to ensure that it is published more quickly, and that it gives a robust, useful and accessible picture of company profits. Both of these reforms will help ensure competition bears down as effectively as possible on prices.”

Secretary of State for Energy and Climate Change Edward Davey said: "This is a significant and welcome toughening up of competition in electricity markets. By making these wholesale prices more transparent, it will help reveal how the Big Six energy companies are trading, and make it easier for new competition to challenge their business model.

"We've been working to make energy markets work better so that consumers get a better deal, and getting a clearer picture of how energy companies are spending their customers' money is an absolutely vital step. Changing the rules for how energy is sold to suppliers is a big step forward in creating a fairer, more competitive energy market in the UK.”

Since 2009 the largest energy suppliers have had to produce annual statements showing the costs, revenues and profits for their generation and supply businesses. Ofgem will review the method used for reporting the price of electricity sold by the largest suppliers’ generation businesses to their supply businesses in their annual statements, to consider whether this is being done appropriately. Scottish Power and Centrica have provided more details of their trading activities in their latest statements; we expect other companies to do likewise, and will consider whether new rules are necessary to ensure this detail is included in future.

Ofgem has told suppliers to bring forward publication of future statements by two months and to ensure those statements are fully and independently audited, starting from their 2014 statements. Together these reforms will allow more detailed and timely scrutiny of suppliers’ activities.