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£45 million failure for Ofgem energy rules

ofgem-logoAnother failure for Ofgem as their electricity market reforms fell flat costing energy companies around £45 million.

Ofgem implemented new rules to ensure that the largest energy companies are only allowed to trade at pre-determined times during the day. The idea was that it would increase trading and competition allowing smaller players to flourish yet data shows that trading in the energy market has slowed as a result.

In fact, traded volumes in Q3 2015 were the lowest for the quarter since 2013, which was a historical low for the UK power market.

It seemed to start off so well with trade picking up in the first few months after the new rulings, but experts say this was down to the burgeoning issues between Russia and the Ukraine, which raised concerns over European gas supplies.

Yet as the political situation has cooled down, so have trading volumes. However, trading opportunities on peakload power contracts have increased which had been difficult to trade before the reforms.

“Has it been worth it? Well, Ofgem can say they are doing something, the utilities can say they are complying with Ofgem, and the small suppliers can’t say they are unable to hedge their volumes anymore. They have succeeded in getting better visibility of prices along the curve, which will aid them in CfD indexation. But the actual volumes traded are going to fall,” one trader said.

While the reforms have allowed clearer long-term price signals to aid smaller suppliers, larger players have been put off by the new regulations limiting their trading hours.

Even the Competition and Market Authority (CMA) have said that Ofgem’s market reform rules may be putting banks off and that they will keep monitoring the progress of the reforms.

Looks like another of Ofgem’s schemes has failed after their disappointing SMI reports and the flop of their new billing rules which were binned after confusing customers.

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