2016: More change, market share and entry
The Energy Suppliers Forum, managed and supported by Cornwall Energy, provides an opportunity for independent suppliers to meet monthly to discuss regulatory and policy developments.
Since the inception of the forum in 2003 the GB energy retail markets have witnessed significant change. As of January 2016 there are 28 operational domestic suppliers outside of the Big Six with more ready to enter the market. The non-domestic market boasts 45 suppliers in addition to the Big Six. In terms of market share independent suppliers account for all time highs: around 12% of accounts in the domestic market, 25% of all non-domestic electricity volumes, and a whopping 80% of non-domestic gas volumes. The majority are members of the forum.
The rules within which all suppliers operate continue to evolve. Although the pace of change is often slow, the sheer number of regulatory and policy programmes under development can be daunting for less well-resourced and newer entrants. Big ticket changes we will be helping our members track in 2016 includes Ofgem's work to rationalise the supply licence and move to principles based regulation; the outcome of the Competition and Markets Authority's review of the energy sector; the regulator's switching significant code review that looks to shorten customer transfer times; the upcoming significant code review from Ofgem to introduce mandatory half-hourly settlement for all electricity customers; the culmination of the major Project Nexus work in the gas market; and the go-live of the "DataCommsCo" that is central to the smart metering programme.
Every second Wednesday of the month the forum meets in London to discuss issues pertinent to domestic suppliers; a day earlier the forum is held exclusively for non-domestic suppliers. It is usual for external visitors to attend meetings to discuss and debate proposals with members. During 2015 the forum welcomed visitors from DECC, Ofgem, Cabinet Office, trade associations, Elexon, Gemserv, National Grid, LCCC, and Citizens Advice.
A meeting of the full forum is held annually in December to discuss pan-supplier issues.
The forum is open to all independent suppliers operating in the domestic and/ or non-domestic markets. We welcome new suppliers to come along, at no cost, to a couple of meetings to see how we do business and to understand the issues exercising suppliers. If you would like to learn more of the Energy Supplier Forums please contact Ed Reed on 01603 604410.
The first joint meeting of the year discussed the issues and costs arising from the recently announced changes to the capacity market and hurdles and next steps for moving to half hourly settlement for smaller meters.
The forum was also the first of the new format, following our refresh of the supply forum format. The meetings now focus on two 'focus issues' to allow an in detail examination and discussion of the most important and relevant issues to suppliers of the month.
Focus issue one - capacity market
The first focus issue of the meeting focused on the capacity market and what DECC's recently announced changes meant in terms of costs and operations.
The discussion focused on DECC's May consultation response, where it confirmed a number of proposed changes, following on from concerns raised regarding previous T-4 auctions, including that the clearing price was too low for new build gas and it was encouraging the deployment of embedded diesel generation.
In response to these DECC has confirmed its intent to procure additional capacity at the next T-4 auction, potentially over 3GW extra than previously. This is intended to increase the clearing price achieved in the auction and so provide further support to new build gas plants. Additionally, given the tight capacity margins it intends to hold a new auction for delivery in the winter of 2017-18, with the auction taking place in January 2017. According to DECC's modelling the net benefit of bringing this auction forward is between -£2.4bn and £11bn and will result in an additional gross cost to consumers will be between £28 and £38 on the annual domestic consumer bill. Discussions noted the size of this range, and then focused on the additional costs this would cause for suppliers. Cornwall Energy modelling shows that the capacity market has the potential to add over £4.50/MWh to the cost of supply in 2017-18, or over £85/MWh when considered over the charging period.
Focus issue two - half hourly settlement
For the section focus issue the move to elective and potentially mandatory half hourly settlement (HHS) for profile classes 1-4 was covered.
Ofgem has determined HHS in customer interest because it will: promote innovation and competition in the energy market, help to create the right environment for more DSR, including ToU tariffs/ contracts, help suppliers to forecast demand more accurately, and make the settlement process itself faster and more efficient. In light of this it published its Elective half-hourly settlement: conclusions paper on 26 May. In this it stated that it has decided not to take forward an SCR at this stage, but it expects industry to come forward with code changes to give effect to HHS, and that it will be taking a greater degree of oversight that normal to ensure that elective HHS is enabled by early 2017.
In order to deliver this it has identified a number of priority issues, including: the Change of Measurement Class process; higher agent costs for HH agents; how transmission charges are calculated for meters that move from NHH to HH; and the GSP correction factor. Discussions noted that while the move to HHS would increase the accuracy of settled volumes it also has the potential to increase supplier costs in a range of ways, such as the loss of the GCF, TNUoS double charging, higher agent costs, and increased performance monitoring. It was therefore noted that a number of changes would be needed to help lower the barriers to entry for HHS and the remaining discussions focused on the changes currently in train, including P339.
The suppliers' forum meetings typically comprise:
An update on discussions being undertaken within the following industry arenas:
The meetings are normally held on the second Wednesday of each month.
See our Brochure on the Energy Supplier Forum for more details on our members.