Bloomberg News

SSE to Auction All Its Power as Government Seeks Competition

October 12, 2011

(Updates with Ian Marchant comment in fourth paragraph.)

Oct. 12 (Bloomberg) -- SSE Plc, the U.K.’s second-largest power producer, plans to auction all the electricity it generates in the day-ahead market as the government presses for more competition in the energy industry.

SSE will also buy all the power it needs to supply customers, the Perth, Scotland-based company said today in a statement. The utility plans to use Nasdaq OMX Group Inc. and Nord Pool Spot AS,’s N2EX daily power auction, Justyn Smith, an SSE spokesman, said by telephone.

Chris Huhne, the U.K. secretary of state for energy, said last month he wants greater competition and price transparency for consumers as he seeks to hold back rising household energy bills. Ofgem, the market regulator, proposed in June that utilities be forced to auction as much as 20 percent of their electricity to boost competition. The watchdog plans to announce final measures before the end of the year.

“Current volumes in the market are small enough that they can be distorted accidentally or deliberately by individual small trades,” Ian Marchant, SSE’s chief executive officer, said at an energy event in London. “If we have a really deep day-ahead market, we’ll get a reliable benchmark for reliable price discovery. So whatever prices are in the future, people have more confidence that they are right, they are fair, they’ve been set properly.”

‘Restoring Confidence’

Electricity volumes in Britain, Europe’s third-biggest power user after Germany and France, trade at a rate of about 3.6 times annual consumption, London-based consultant Prospex Research Ltd. said in a May 11 report. That compares with 9.4 times in Germany, it said.

SSE will start increasing electricity sales on Oct. 14 and expects to be trading all its power through the auction by the end of the financial year. The company’s average daily demand is about 165 gigawatt-hours, it said in the statement.

The N2EX platform, host of the U.K.’s biggest power auction, handled 39 gigawatt-hours in its auction today, according to data compiled by Bloomberg. SSE said a further 200 gigawatt-hours of day-ahead power is usually traded through brokered markets.

SSE’s measure “is another step by the energy suppliers to try to restore political and public confidence in the market,” Ashley Thomas, a London-based analyst at MF Global, said by e- mail. Full auctioning “ultimately improves price transparency, lowers barriers to entry for competition and helps the smaller operators.”

Big Six

Electricite de France SA is the largest power producer in the U.K. while Centrica Plc is the biggest energy supplier. They compete with SSE, EON AG, RWE AG and Iberdrola SA’s Scottish Power. The six companies supply 99 percent of Britain’s electricity and natural gas.

Centrica said by e-mail plans to auction all volumes through the day-ahead market “could actually exacerbate the risks for suppliers and could lead to more price volatility for customers.” EON will gradually increase the volumes it puts through the daily auction, Sara Vaughan, EON’s director of regulation and energy policy, said by e-mail. The company has traded 22 percent of its generation through the exchange so far this year, she said.

‘Negligible’ Cost

The actual cost to SSE of increasing trading through the auction is “negligible,” said the spokesman, Smith.

The N2EX exchange said Sept. 19 it’s looking to start a so- called gross bidding agreement that would offer capped fees to utilities that commit to trading all generation and consumption in its auction. Higher volumes in N2EX’s daily auction may increase confidence in its price, which is used to create the exchange’s futures market, designed in 2008 by the U.K.’s power- trading forum as a way to boost competition. Energy companies trade electricity as long as two years in advance to lock in profits.

“In theory, it should lead to liquidity in the day-ahead market without taking liquidity from future contracts,” Jayesh Parmar, a London-based consultant at Baringa Partners LLP, said in a telephone interview.

SSE said it will continue to trade in the forward market. The company generated 47,500 gigawatt-hours of power last year, almost 15 percent of U.K. electricity demand, it said.

--Editors: Alex Devine, Randall Hackley

To contact the reporters on this story: Catherine Airlie in London at cairlie@bloomberg.net; Kari Lundgren in London at klundgren2@bloomberg.net.

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net.


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