The Uk Energy Market
The United Kingdom (UK) has been in a position to allow business and
domestic consumers to choose who supplies their gas and electricity. This has been created by a liberalised or deregulated market. The following gives you an explanation as to how this is possible.
In the late 1990′s the energy market regulators and the UK government decided to stop the monopoly that British Gas and the regional electricity companies had in the UK. They “deregulated” the energy markets meaning other companies could supply gas and electricity to regions that were previously unavailable.
The gas market was the first to deregulate and new gas companies or electricity companies could start to supply gas to what were British Gas customers in the UK.
The electricity market was next to open up. There were originally 14 supply areas in the UK, with regional supply companies. Each of these companies could only supply the customers in their respective regions. These regions can be seen here.
The electricity market opened in two stages. First companies were allowed to offer products in other supply regions but the regional supplier had to have their pricing agreed by Ofgem before they could change prices.
This was to make sure that companies coming in to new areas provided cheaper products than those of the regional supplier.
After a few years of this the restrictions were lifted to allow regional supply companies to compete in a fully deregulated market.
The initial deregulation allowed a few new supply businesses to enter the market. They had keen prices to gain a market share but as the wholesale costs of energy increased over the following years many were either taken over by larger energy companies or went bust.
The initial idea of deregulation was to increase competition and allow more suppliers to compete but due to the economies of scale favoring the larger companies who could absorb the spiraling wholesale market costs we have seen what were 14 main supply regions now consolidate to a smaller number of very large energy providers.
Details of this can be seen below showing the old regional supply companies now consolidated by who owns the areas.
In the 12 months preceding the winter of 2005 / 2006 the Uk saw gas prices at an all time high caused by a harsh winter, worries about a shortage of north sea gas and inability to import sufficient gas from abroad. The UK also generates 40% of its electricity from gas so in times of high electricity demand we will see gas prices rise. In times of both we will see both gas and electricity prices rise.
There are still a few smaller independent energy suppliers in th UK but the high cost of gas and electricity will be a barrier to more starting in future years unless we get more stability.
In January 2006 the predictions were that prices would continue to rise for the next few years and, with European markets being urged to be more competive and deregulate, prices may stabilise coming out of 2007 and into 2008.