MSE News: Scottish and Southern Energy throws open electricity market

Consumerist

magyar wrote: »

It won't make any difference. They can still do financial hedges on top.

If all generators put all generation for auction on day-ahead contracts then, surely, there won't be any capacity available for long-term contracts unless some of the available capacity is not sold at the auction.

Must confess, I'm a bit confused.

magyar

Consumerist wrote: »

If all generators put all generation for auction on day-ahead contracts then, surely, there won't be any capacity available for long-term contracts unless some of the available capacity is not sold at the auction.

Must confess, I'm a bit confused.

What you do is have contracts for difference. The retailer agrees a strike price of e.g. £50/MWh with a trading company. They then buy physical power on the Day Ahead market. If actual auctioned price is £40 then the utility pays an additional £10 to the trading company. Conversely, if the auctioned price is £60 then the retailer receives £10 from the trading company.

Consumerist

magyar wrote: »

What you do is have contracts for difference. The retailer agrees a strike price of e.g. £50/MWh with a trading company. They then buy physical power on the Day Ahead market. If actual auctioned price is £40 then the utility pays an additional £10 to the trading company. Conversely, if the auctioned price is £60 then the retailer receives £10 from the trading company.

OK thanks for that.

So who are these "trading" companies and won't they want a fee for taking the risk?

magyar

Consumerist wrote: »

OK thanks for that.

So who are these "trading" companies and won't they want a fee for taking the risk?

There are dozens of them, all the utilities have trading companies, but so do many of the banks etc. - basically anyone who trades in commodities.

The 'fee' is effectively built into the price. At the moment baseload power trades around £50 so if you wanted a 1-yr fix you'd probably agree say £40-45, whereas if you wanted a 5-yr fix you'd be talking £30-35.

Consumerist

magyar wrote: »

. . . At the moment baseload power trades around £50 so if you wanted a 1-yr fix you'd probably agree say £40-45, whereas if you wanted a 5-yr fix you'd be talking £30-35.

OK. I ask too many questions. :rotfl:

Pincher

How does any company know how much electricity to buy for tomorrow?

They don't read my meter everyday, and each house in my block could be with a different supplier, so they can't even measure how much and to whom to attribute the power used.

magyar

Pincher wrote: »

How does any company know how much electricity to buy for tomorrow?

They don't read my meter everyday, and each house in my block could be with a different supplier, so they can't even measure how much and to whom to attribute the power used.

This is nothing to do with how much they actually supply. Physical supply of electricity to your house is dealt with by National Grid and your local distribution company.

Effectively this is all purely financial. What happens is that the suppliers buy the amount they think all their customers will be using. If they actually use more or less than that, then they are forced to buy or sell this on an emergency price set by the system operator.

Actually they are very good at estimating this, they look at time of year, weather forecast, TV schedules, sporting calendar etc.

magyar

It's interesting this. I have discussed it with a couple of colleagues and we're all in agreement this will increase prices.

Yet so is the public's current obsession with demonising the utilities, that this is being heralded as a good thing!

Pincher

http://uk.ask.com/wiki/California_electricity_crisis

How is that for deja vu?

Enron is dead, but Goldman Sachs is alive and kicking.

Consumerist

magyar wrote: »

It's interesting this. I have discussed it with a couple of colleagues and we're all in agreement this will increase prices.

Only if the industry remains static. The whole idea is to make it easier for new entrants to the industry and thereby increase competition. Although this may not reduce prices, in the long run it is likely to put the brakes on excessive increases.

The reputation of the energy industry has been well deserved. The energy companies reflect the attitude of the banks in the contempt they have for their customers. A good public humiliation of these companies is long overdue but they probably have nothing to fear from a toothless regulator who only seems able to kiss them into submission on anything.