As the threat of blackouts become more likely this winter, UK energy generators could be taking advantage of the opportunity to inflate market prices to astronomical figures.
National Grid will be calling upon reserve capacity and back up power plants this winter to ensure a secure power supply for the UK. Wholesale power prices typically spike in the event of an energy shortfall. But concerns have been raised over the exploitation of this capacity crunch with generators demanding higher payments before they allow National Grid to use the reserves.
National Grid is only able to use backup reserves in the event that all available plants in the market have already been ramped up and this loophole could mean consumers are paying well over the odds for energy this winter.
“An abundance of Scottish generation capacity and insufficient power links to the rest of the country meant National Grid needed to accept offers to turn down thermal generation at times of high renewable energy output to keep the system balanced. But allegations surfaced that generators were able to inflate their prices ahead of an expected overload to take advantage of National Grid’s position,” according to experts.
A similar situation occurred in 2008 when Ofgem was forced to step in to stop the generators from abusing the precarious supply issues.
Ofgem advised: “We are investigating activities, which might amount to market manipulation, and have already engaged certain participants about these behaviours. Be mindful of European market regulation, which includes rules against behaviour, which inflates price signals.”
While no new rules have been implemented, Ofgem confirmed that the EU’s REMIT market rules would guard the market against abuse and manipulation.
REMIT prohibits engaging in, as well as attempting to engage in, market manipulation on wholesale energy markets.
The offences are defined as entering into transactions which give or have the intention of giving false or misleading signals as to the supply, demand or price of a product, or which secure or have the intention of securing prices at artificial levels; as well as disseminating false or misleading information through the media.
Let’s hope hefty fines and legal action will deter generators from misbehaving this year when the UK is vulnerable to a power shortage.
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