Open GB Electricity Market celebrates its 30th birthday

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THE GB Electricity Market celebrated its 30th birthday earlier this month, so ICON has pulled together some information to mark the occasion.

Following the restructuring of the electricity supply industry in 1990, the former nationalised companies were restructured and privatised and all energy supply sectors opened up to competition.

The number of electricity suppliers rapidly increased, from 16 before privatisation in 1989 to 26 in 2005 to almost 100 today.

First the large industrial market was opened to competition in 1990, followed by the business market in 1994.

The domestic market came next in 1998-99 having been a series of regional franchises before that dominated by the Regional Electricity Company.

However over the next few years, some new independent companies were beginning to make significant contribution to the electricity generation and supply.

The breakup of the nationalised power suppliers into smaller privatised companies immediately increased generation market competitiveness, and the market was greatly boosted by the removal of limitations in 1990 that had previously prevented the burning of gas in power stations with new companies beginning to build their own Combined Cycle Gas Turbine stations from 1992, which marked the start of two major “dashes for gas”.

Major wind farm companies and major solar photovoltaic operators also entered the market especially after 2002 with the introduction of the Renewables Obligation and more recently the replacement of the RO with state-backed Contracts for Differences.

Competition in generation took the whole decade to evolve as new entrants built gas fired stations to undercut coal and the regulator allowed generators to acquire suppliers but only if they divested key generation stations.

Competition was introduced to the electricity supply markets in three phases.

First the upper tier of the non-domestic market (customers with a maximum demand of over 1 MW, comprising 30 per cent of the market) was opened up to competition in March 1990.

Next, the 100 kW to 1 MW tier (15 per cent of the market) was opened up to competition in April 1994.

Full competition for the remaining 55 per cent of the market (below 100 kW peak load) was introduced in stages between September 1998 and June 1999.

This final phase covered domestic consumers who account for almost a third of electricity consumed in the UK.

And then in 2001 the initial wholesale electricity “Pool” introduced in England and Wales in 1990 was replaced by a very different type of trading arrangement, the New Electricity Trading Arrangements, and this was extended into Scotland in 2005.

Independent market commentator Nigel Cornwall spoke about the anniversary to ICON.

“We have seen 30 years of profound change and today’s electricity market-place would be unrecognisable to the designers of the 1990 system”, he explained.

“But none of what happened subsequently would have happened without that landmark change.

“We have seen some major changes since but it is a moot point whether the market structure has keep up with changes in the wider market-place.

“And with the 2050 net zero target now in place, it is inevitable that there will be a whole new debate as to whether the current arrangements will be able to deliver the new types of outcome needed to meet this daunting target.”

Nigel will be expanding on these comments in the coming weeks for ICON, reflecting on the lessons of the past and what these could mean for the trading arrangements going forward.