Ofgem to consult electricity market on liquidity reform progress

Ofgem will meet with representatives from the UK’s electricity wholesale market later this month, seeking feedback on the impact of its market liquidity reforms ahead of an interim report expected by the end of the year.

A spokesman for Ofgem said the regulator will meet with key stakeholders in the next few weeks to gain feedback on the impact that its reforms have had on trading activity since they came into effect just over six months ago.

This qualitative feedback will be reported alongside the quantitative impact on trading volumes so far, in an interim report to be published in mid-December, the spokesman said.

“The interim report will not provide any conclusion on the effect of the reforms as it is too early to have any conclusions. We will need at least one year of data to begin to understand the effect on liquidity,” the spokesman added.

The regulator acted to address the growing concern over limited trade liquidity in the electricity market, which halved from 2002 levels, by imposing new trading rules on the market in April this year.

In particular, under the so-called ‘mandatory market maker’ reforms the market’s biggest players are forced to post prices at which they are prepared to buy and sell power two years in advance during set windows twice a day in order to allow the opportunity for smaller parties to trade.

At the time of implementation market players were skeptical that the reforms would boost the amount of trade in the market.
EDF Energy pointed out in the consultation phase of EMR that the total cost of Ofgem’s plans could exceed £45 million, and they may still have little impact.

“The question is whether or not the benefits of the measures outweigh the cost of implementing them,” the chair of the UK’s Power Trading Forum (PTF) Stephen Harris told Utility Week in June.

Ofgem said that it will follow its mid-December interim report with an annual report currently planned for the middle of next year.