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: 1st Jul 2019
  • Guidance
  • 1 Associated documents
Today we have updated the list of Eligible Suppliers for the purposes of the Supplier Market Access rules.

  • Published: 30th May 2019
  • Open letters and correspondence
  • 1 Associated documents
This letter provides an update on our developing market liquidity work programme.

  • Published: 15th Mar 2019
  • Decisions, Open letters and correspondence
  • 1 Associated documents
This direction dis-applies the requirements of Special Condition AA (Liquidity in the Wholesale Electricity Market) for Gwynt y Mor Offshore Wind Farm.

  • Published: 4th Mar 2019
  • Decisions, Open letters and correspondence
  • 2 Associated documents
See our decision to modify Special Condition AA: Liquidity in the Wholesale Market in the Electricity Generation Licences held in the ENGIE corporate group.

  • Published: 31st Jan 2019
  • Decisions, Open letters and correspondence
  • 2 Associated documents
Our decision to modify Special Condition AA: Liquidity in the Wholesale Market in the Electricity Generation Licences held in the ScottishPower corporate group.

  • Published: 3rd Jan 2019
  • Decisions, Open letters and correspondence
  • 1 Associated documents
Direction by the Gas and Electricity Markets Authority under paragraph AA.1 of Special Generation Licence Condition AA.

  • Published: 6th Nov 2018
  • Open letters and correspondence
  • 2 Associated documents
This letter provides update on our position and reasons, including consideration of stakeholder responses, and outlines next steps.

  • Published: 9th Aug 2018
  • Open letters and correspondence
  • 1 Associated documents
We have published an open letter outlining the next steps in our review of Secure and Promote.

  • Published: 9th Aug 2018
  • Decisions
  • 2 Associated documents
This letter and Direction sets out our consent to modify Special Condition AA of Centrica's Electricity Generation Licences.

  • Published: 13th Dec 2017
  • Closed: 7th Feb 2018
  • Consultations and responses
  • 1 Associated documents
Following our initial consultation on our review of the secure and promote policy, we are consulting on changes to the licence condition

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