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The UK Electricity Market

Stuart Senior Chief Executive, ELEXON

stuart.senior@elexon.co.uk

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Agenda

• A brief history of the electricity market in Great Britain

• Who is ELEXON?

• Is the market working?– a technical view– a consumer view

• What about the future?

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A brief history

1990 - privatisation of the industry and competition in generation and supply >1MW

1994 – competition in supply >100kW

1998 – full competition in supply

2001 – replacement of the Pool with the current trading arrangements - bilateral contracts and imbalance settlement

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Who is ELEXON?

ELEXON manages the operation and governance of the wholesale market as set out in the Balancing

and Settlement Code (BSC).

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Is the market working?A technical view - 1

10

5

02001 2002 2003 2004 2005 2006 2007

Total number of modifications

per month

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Is the market working?A technical view - 2

5

02001 2002 2003 2004 2005 2006 2007

Number of pricing modifications

per month

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Is the market working?A technical view - 3

96%

92%

2001 2002 2003 2004 2005 2006 2007

Percentage of non-half hourly energy settled on

actual vs. estimated consumption

95%

94%

93%

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Is the market working?A consumer view

The Regulator(ofgem)

The Consumer Watchdog(energywatch)

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Ofgem’s view

• Vigorous competition on price• Tariff innovation to win customers:

– fixed, capped and index-linked

– online and green

• Customers switching suppliers (4m households in 2006)

• Competition in service (fewer complaints)

Source: Britain’s competitive energy market, ofgem fact sheet 69, 04.07.07

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energywatch’s view

• Concentrated regional markets (incumbents retain ~55% share)

• Price matching by the big verticals to avoid damaging price wars

• Switching driven in part by customer confusion and mis-selling, and the same people chasing early (late) movers

• Barriers to entry and expansion

Source: An assessment of competition in the energy market, Prof. Stephen DaviesUniversity of East Anglia, 11 July 2007

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Electricity market shares

21%

19%

16%

14%

18%

12% <1%

British GasPowergenNpowerEDF EnergySSE

Scottish PowerOthers

Source: Domestic Retail Market Report - June 2007 , ofgem, 4 July 2007

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What about the future?

Evolution Steering Group (ESG)

http://www.elexon.co.uk/documents/Consultations/Consultation_on_Evolution_Steering_Group/ESG_Consultation.pdf

Sources of changeSources of change

Annual Review

Impact onthe market

Likelihoodof change

http://www.elexon.co.uk/documents/Consultations/Consultation_on_Evolution_Steering_Group/ESG_Consultation.pdf

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Sources of change

Climate Change

Nuclear

Simplification Europe

Security of Supply Energy Costs

Renewables Distributed generation

Smart metersMicro-generation

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ESG Conclusions

Impact on the market

Low

High

Timescale - years0 105

Climate change

Micro generation

Smart metering

Simplification

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Overall conclusions

• The GB electricity market is now >6 years old and works well …. but we continue to ‘fine tune’.

• Over the next few years, better data quality, through smart metering, will speed up settlement but no major system changes will be required.

• The next BIG market re-design will probably be a consequence of the climate change agenda.