Of pigs, pokes and promised lands

Forgive me, for I am a layman in these matters, but I’m not sure I understand what it is exactly that Scottish and Southern Energy are proposing to do with their announcement yesterday (£) that it will be offering ‘all’ its electricity for sale to any household supplier on the ‘day ahead’ market.  This undoubtedly sounds like good news for transparency and access to markets for small suppliers, since there will be strict parity on the day ahead market between whoever is selling and whoever is buying.  The suspicion that companies buying and selling internally and therefore possibly ‘rigging’ such markets in their favour will be removed.

But all power?  I don’t buy that.  Most of the output of any generator is sold bilaterally on the futures market in the form of longer term deals, sometimes up to a year ahead. SSE have said that they will continue to deal in the futures market, so I imagine that most of their output will continue to be sold in this way.  What I think they are talking about is ‘available’ power (which they have specified in the small print of their announcement) . That would be the fraction of their total output that is able to be internally traded to mop up any imbalances they still have before going to ‘gate’ closure.  This means – perhaps – 5% of SSE’s output will actually be auctioned in the day ahead market. Those who want 100% auctions are, therefore likely to be somewhat disappointed once this point is made clear. And frankly, if SSE have acquiesced in letting it be assumed, as newspapers yesterday and this morning have asserted that this does represent something like a 100% auction, then they are being a little naughty.

A declaration to auction in the way SSE have done is a good move forward, and may well help those small utilities that do trade largely on the day ahead market, but it’s a completely different animal from full auctions or indeed the beginning of a ‘buyer pool’ as a method of putting the question of ‘rigged’ trading to bed.  That’s still a debate for another day.

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