Liquidity

In order to support competition and efficiency in a market, liquidity is vital.

Liquidity is a measure of the ability to buy or sell a product – such as electricity - without causing a major change in its price and without incurring significant transaction costs.

An important feature of a liquid market is the presence of a large number of buyers and sellers willing to transact at all times.

Liquidity is a key performance indicator for the wholesale electricity market and one of the measures that we use when monitoring the effectiveness and levels of competition in the GB wholesales markets. One way of measuring liquidity is to look at churn (ie the number of times electricity which is generated in the market is subsequently traded).

Improving liquidity in the electricity market can be beneficial for consumers because:

  • liquidity is needed by any new participant considering entering a market;
  • liquidity may result in greater price transparency which can then provide opportunities for increased competition across the market; and
  • improved liquidity can work to provide a level playing field for independent companies so they can compete in the market on the same terms as vertically integrated companies.

How we work to promote liquidity in the electricity market

We have set three liquidity objectives for the market. The electricity wholesale market must:

  1. Ensure the availability of a range of longer-term products to support hedging of risk of exposure to large changes to prices (hedging refers to the ability to buy power over different timescales at set prices to manage risk of exposure to changes in price)
  2. Support robust reference prices that that are widely available to market participants (reference prices  are prices  reflective of a product’s real market value based on underlying economic conditions)
  3. Promote an effective near term market which enables all companies to buy the power they need for their customers.

To meet these objectives Britain’s major energy suppliers, (known as the Big Six), have committed to trade a proportion of their power station output in the day ahead market (where power is sold for use the next day).

There have also been some signs that independent suppliers are more able to buy wholesale electricity from Big Six companies in forward markets, although further progress is needed here.

Publications and updates

  • Published: 21st Aug 2017
  • Guidance
  • 1 Associated documents
Today we have updated the list of Eligible Suppliers for the purposes of the Supplier Market Access rules

  • Published: 25th Jul 2017
  • Closed: 19th Sep 2017
  • Consultations and responses
  • 1 Associated documents
We have published our consultation on the Secure and Promote liquidity policy review. Please send in responses before 19 September 2017.

  • Published: 4th May 2017
  • Open letters and correspondence
  • 3 Associated documents
All documents used in the Secure & Promote workshop on 2 May are now available.

  • Published: 30th Nov 2016
  • Decisions
  • 3 Associated documents
See our Directions which consent to E.ON and Uniper’s request for modification to Special Condition AA (Liquidity in the Wholesale Electricity Market) of their generation licenses, and a letter outlining our reasons for doing so.

  • Published: 3rd Aug 2016
  • Reports and plans
  • 1 Associated documents
This is our second annual report on liquidity in the wholesale electricity market since our licence obligations to promote liquidity came into effect in March 2014.

  • Published: 4th Apr 2016
  • Decisions
  • 1 Associated documents
This direction switches off the requirements of Special Condition AA.2-AA.6 for Lynemouth Power Limited from 01 April 2015.

  • Published: 21st Sep 2015
  • Decisions
  • 2 Associated documents
Decision to modify the electricity generation licence of Secure and Promote licensees – market making on the afternoons of the preceding business day to the 25 December and 1 January

  • Published: 9th Sep 2015
  • Reports and plans
  • 1 Associated documents
Ofgem's first annual report on liquidity in the wholesale electricity market since our new licence obligations to promote liquidity came into effect in March 2014.

  • Published: 19th Aug 2015
  • Open letters and correspondence
  • 1 Associated documents
Open letter on improving transparency for eligible suppliers on prices charged under SMA rules.

  • Published: 28th Jul 2015
  • Closed: 26th Aug 2015
  • Consultations and responses
  • 7 Associated documents
Statutory consultation on modifying the electricity generation licence of Secure and Promote licensees – market making on the afternoons of the preceding business day to the 25 December and 1 January

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