Memorandum submitted by Green Energy UK
Plc
Green Energy (UK) plc is a small independent
"white label" supplier, supplying electricity from renewable
and chp generation to domestic and small business customers.
Green Energy UK started trading in 2001 and
hence has first hand experience is the barriers to entry and growth
displayed by the electricity markets.
SUMMARY
There are three main points I wish to make:
(1) The lack of liquidity in the wholesale
electricity markets.
(2) The use of credit and security cover.
(3) The inherent bias within the consultation
process in regulatory reform.
LACK OF
LIQUIDITY IN
THE WHOLESALE
MARKETS
The markets have consolidated, with few new
entrants in recent years and the "big 6" becoming increasingly
vertically integrated. With a smaller and smaller open market,
there are fewer "risk" management options or products
available to small and new entrants creating both a barrier to
entry and a barrier to growth.
There is a separate submission from a group
of smaller suppliers, Bizz energy and others, which covers these
points in more detail, and whose recommendations on opening up
the market we endorse and support.
USE OF
CREDIT AND
SECURITY COVER
A form of credit cover or security cover is
required at many points in the market, from the forward purchase
of electricity, the use of the distribution or transmission networks
or the use of the balancing system.
The reasons for these arrangements are to protect
the industry from any "domino" effect resulting from
a company failure. However for the large and established players
these are of little cost, as they are providing credit to one
another but for a new entrant these are considerable financial
obstacles to overcome. If a new entrant or small supplier was
to fail, the cost to the industry is minor, when put against this
the cost to the consumer of deterring competition which is probably
greater. In protecting the industry from failures, the industry
has created a barrier to innovation and entrepreneurialism.
REGULATORY REFORM
To change any part of the regulation within
the industry, a change is proposed, and then goes out to consultation
for views from both within and without the industry.
In reality, the large organisations (which means
the big six) have the resources to put into a carefully crafted
response, whereas the smaller organisations, and those from without
the industry, but with a valid concern, rarely have the resources
to respond to the consultations in detail if at all. The result
is an inbuilt bias in favour of the larger players, who in turn
will naturally be responding with their own companies' best interests
in mind. As any new entrants can only grow by taking customers
away from the established players, the incumbants will naturally
favour measures which will maintain or build barriers to entry
or growth.
March 2008
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