Energy News

Scottish & Southern announces it will auction 100% of its power generation

By Martin Fagan

Scottish & Southern offer to sell its electricity output to other energy providers could encourage smaller suppliers and cheaper bills

From Friday, power giant Scottish & Southern will start auctioning the electricity it generates on the wholesale market.

Traditionally, the “big six” energy suppliers use their own power stations to generate electricity that would be sold to their own customers, with only a small amount of the total power generated traded on the wholesale market.

Scottish & Southern said the volume of electricity traded will be increased gradually over the next few months. It expects to auction 25% of its total daily electricity output by November and all its electricity supply to be traded in the “day ahead” market by 25 March, 2012.

The move could lower barriers to entry into the power supply market and could allow new, smaller entrants to the energy market, bringing more competition for consumers and, it is hoped, result in lower bills for consumers.

Critics have argued that the strong position of the “big six” and their huge customer base that never move accounts to cheaper deals has protected them from true competition.

Scottish & Southern has around 5.2 million electricity customers and, like the restof the “big six” energy suppliers, has raised its energy prices in 2011 on two separate occasions.

This seemingly orchestrated series of price hikes spurred energy regulator Ofgem to announce it would force the “big six” to auction off up to a fifth of the electricity they generate to make room for new companies and boost competition.

Many commentators have interpreted Scottish & Southern’s announcement as a pre-emptive response to Ofgem’s threat that power companies who failed to reform voluntarily risked a referral to the Competition Commission.

“This commitment will significantly improve the liquidity in the wholesale electricity market and help to address one of the perceived barriers to entry,” said Alistair Phillips-Davies, director of generation and supply at Scottish & Southern.

“If other energy companies adopt a similar approach, this commitment could lead to a transformation in the wholesale electricity market in Great Britain.”

One of the UK’s existing smaller suppliers, First Utility, has dismissed Scottish & Southern’s move as “smoke and mirrors”. Speaking to the BBC , First Utility said it bought “less than 1%” of its electricity on the “next day” market and that the majority of the power it buys is purchased up to two years in advance.

Responding to Scottish & Southern's announcement, Adam Scorer, director of external affairs at Consumer Focus, said: “There have been many questions about how competitive the energy market is and the barriers to new energy suppliers. It is good to see one of the big players taking steps that will help smaller suppliers compete.

“The opening up of the day-ahead market is unlikely to make much difference to prices across the big suppliers in the short-term, but it should make it easier for new players to enter the energy supply business and help existing small suppliers to grow.

“More open trading will help to increase transparency over the prices suppliers pay and increase competitive pressure in the market - which will help to keep pricing fair for consumers.”