Since the early 1990′s the UK’s electricity industry has evolved from a government controlled monopoly to a fully competitive market giving customers the freedom to choose their energy supplier. In the process a commodity market for wholesale electricity transactions was established. Here electricity is traded in large volumes, mostly between electricity producers selling the output of their power stations and electricity suppliers buying what their customers need. When power is traded in the UK market, it may be quoted in megawatt hours (MWh).
Unlike other markets that use a forward curve for pricing contracts for delivery at different points in time, the fact that electricity cannot be stored means that the traditional methods of pricing a forward contract (i.e spot price plus net carry) does not apply. As a result expected levels of supply and demand determine the forward price in £/MWh.
Competition in the electricity and gas markets was phased in over an eight year period, due to the sheer size of the task in terms of the number of customers and the technical complexities involved. In April 1990 the first tranche of the electricity market, covering about 5,000 large customers with a maximum demand of 1 MW and above, was opened to competition. Ten years later 81% of customers in this market were supplied by a non-local supplier.
In 1991 British Gas also opened their market to competition with the first tranche affecting customers with a consumption in excess of 25,000 therms per annum. The second tranche of the gas market was opened between 1992 and 1995, dependent on location and affected customers with a consumption of between 2,500 therms and 25,000 therms per annum. In April 1994 the second tranche of the electricity market, covering about 50,000 medium size customers with a maximum demand of 100 kW-1MW, was opened to competition. This market competition has also developed well and now more than 50% of customers are supplied by a non-local supplier.
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The last and the largest tranche of the electricity market covering about 26 million customers with an annual consumption of up to 12,000 kWh, so called ‘designated customers’, including domestic and small business customers, was progressively opened up for competition between September 1998 and May 1999. Slightly earlier, in May 1998 the domestic gas market, some 18 million customers, was fully opened to competition. By the start of 2001 around 11 million (38%) of domestic customers had switched supplier at least once. Today daily energy trading takes place which determines the current, and future wholesale electricity prices on the market. All of our wholesale electricity prices graph reports and wholesale electricity prices historical can be found in our reporting section of our site along with our wholesale electricity prices Europe report and detailed analysis from wholesale electricity prices 2012 through to the present day.
For the latest wholesale electricity prices visit please review our latest energy market reports here.
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