Global recognition that the UK may have gained for its pioneering adventures into liberalisation and privatisation of its energy industries now seems to be disappearing under waves of government reconsideration, regulatory reviews and political exploitation.

Any delusion of free industrial competition has been evaporated by: a government moratorium on the installation of gas fired power plants; realisation that the three major generators were uninhibited in controlling the power market; and failure of electricity distributors to instigate competitive supply to residential consumers on the required time scale.

The catalyst for these radical reversals of principles, which is resulting in financial embarrassment for a number of new combined cycle power plant projects for which major binding contracts have been signed, must seem to some extent politically justified by the weakness of the EU Energy Directive.

Coal, employment and security of energy supply are the heart of the problems, and the political problems are undeniable, but you can no more have a relatively competitive energy industry than be relatively dead or relatively pregnant. Nonetheless, competitive power supply might have emerged in the UK with an effective electricity bourse dealing in futures, options – the full range of derivatives contracts with which to hedge the risks instead of the ineffective CFDs enshrined in the privatisation legislation.

At 06:23 on the morning of 29 July, 1998, the wires buzzed with the news that Director of Electricity Regulation Professor Stephen Littlechild planned a shakeout in the wholesale electricity market to increase competition and reduce prices. Among the planned changes were:

  • Forwards and futures markets operating several years ahead if required, organised by independent market operators

  • A short term market between individual companies, operating from at least twenty four to about four hours before a trading period to allow traders to fine tune their needs.

  • A balancing market from about four hours before a trading period to enable the National grid Company to balance generation and demand.

    OFFER expressed hopes that the new arrangements might be introduced by April 2000, following a period of consultation.

    At 07:34 the same day, the wires buzzed again. The UK Parliament’s all party Trade and Industry Committee issued a report declaring that penalties imposed on British electricity suppliers for their failure to open up the domestic market to competition were inadequate. The Committee was “appalled”. The report said “It is unacceptable that a major infrastructural project, originally estimated by the DGES to cost at most £375 million over five years, should now cost £726 million over the same period, particularly when electricity consumers are directly footing the bill.”

    The DGES had only imposed aggregate penalties of some £50 million on the fourteen PESs (Public Electricity Suppliers).

    These radical ripostes came a month after the appearance of the UK Department of Trade and Industry’s consultative document Review of energy sources for power generation, along with the reports by independent consultants – Wood Mackenzie on the supply and demand for gas up to 2020, and Merz and McLellan on the security and stability of the England and Wales electricity grid system arising from high levels of gas fired generation.

    In spite of the clear implications of both these reports that there was no substantial justification in commercial or strategic terms for a moratorium on gas fired power plant installation, the DTI review manages to make a credible case for retaining a viable coal fired power plant commitment, albeit without indicating what this could cost the consumer or how it could be achieved without government subsidies of the kind enshrined in Germany’s new energy liberalisation regime. But it outlines a new policy of limited competition within government restraints which is unlikely to motivate major investors.

    The continuing question in the minds of both electorates will be – “when will the residential customer be able see the promised benefits?”