Cliff-hanger: supplier new entry in volatile markets

Weekly overview of our Energy Spectrum publication

In this week’s Energy Perspective, we set out how recent wholesale price events, and increased volatility generally, could be impacting new entrant domestic suppliers. Where their business model is customer acquisition through cheap fixed prices, accompanied by low levels of trading for risk management, it makes such suppliers particularly vulnerable to unexpected cost spikes.

We argue that the recent events are a reminder to the regulator to resurrect earlier thinking on financial assurance tests for new entrant suppliers to guarantee market integrity and consumer trust. We do not wish failure on anyone in the market but, given the obvious stresses changes in the wholesale market are likely to create for new entry business models in supply, measures that limit the chance of such events happening can only be a good thing for a healthy, sustainable and trusted market. 

In this week’s policy section, we breakdown Cornwall Insight research into the future of low-carbon cost levies to be published this week. We find that electricity bill subsidies to promote the deployment of low-carbon technologies look set to rise over £12bn/ annum in the middle of the next decade from £7bn now. Our analysis shows that political concern over rising energy bills will be long-term – regardless of price caps coming into force.

Within our policy stories, we also consider the BEIS consultation outlining the scope of the government’s commitment to phase-out the installation of high-carbon fossil fuel heating in new and existing buildings off the gas grid during the 2020s. An interesting point of note is that BEIS sees results here as acting as a potential pathway to broader heat decarbonisation.

In this week’s regulation section, we explore the first in a series of working papers published by Ofgem on the high-level design of the government’s default tariff cap. Four approaches are under consideration – including a new approach using a bottom-up cost assessment. We find that for such an important consultation on a key design issue, the two-week response window is insufficient.

In our industry structure section, we cover the Triad data published by National Grid for the winter 2017-18 season. It marked the first time since Triads were measured on a GB basis in 2005 that all three peaks have fallen below the 50GW mark. We conclude that this winter highlights how increasingly unpredictable triad are becoming and how demand was higher outside of the Triad period due to no signal for demand response from users.

This week’s Spectrum has two Nutwoods, with the first outlining Cornwall Insight’s co-hosted event with international law firm, Gowling WLG. The day coincided with the launch of our joint White Paper – Electricity Markets in Transition – and examined recent developments and potential future changes in the GB electricity market.

We also have Cornwall Insight Associate, Peter Atherton, assessing the E.ON and RWE asset swap deal. Peter looks at why the deal was announced and what it tells us about the future of the sector.

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