NETA – Ofgem’s Encouraging Verdict on the New Market

Press release issued 31 August 2001

EIUG welcomed the publication today of Ofgem’s reports on the new electricity trading arrangements (NETA) which went live in March 2001.

Ofgem’s findings are encouraging but far from the final word on the subject, not least because the system is still relatively new and has yet to be tested over a high demand period in winter. Since going live five months ago, NGC’s daily balancing costs have declined and the spread between buy and sell prices in the balancing mechanism has reduced, indicating that the system is operating more efficiently. Modifications are currently being considered which may stabilise prices further. However, some serious concerns remain from a customer’s point of view:

  • lack of liquidity in the traded markets
  • lack of activity on the demand side
  • difficulties faced by smaller generators under the new regime

The key question is: will these features of the system remain as the market matures, or are they symptomatic of structural problems which will require further reform to put right? EIUG has an open mind on these issues and is conducting its own review to assess the overall impact on its members.

Jeremy Nicholson, EIUG’s Economic Adviser, commented: “We said NETA would give customers a fairer deal and the evidence so far seems to support that. Changes may be needed to support renewables generation, but we should be careful not loose the principal benefits NETA is delivering to customers.”

Notes to editors:

  1. NETA replaced the electricity pool, a system open to manipulation by generators resulting in unnecessarily high electricity prices and poor value to customers.
  2. Contract prices to industrial customers dropped 10-15% partly in anticipation of a more competitive market after NETA went live, saving energy-intensive users around £60m a year in electricity costs.
  3. EIUG represents the energy-intensive industries whose business depends on competitive energy supplies, and who purchase around 20% of the electricity sold to end users in the UK market.