- Publication date
- 9th September 2015
- Information types
- Policy areas
This report assesses some key indicators that we use to monitor the wholesale energy markets in Great Britain (GB). It gives an overview of conditions in the gas and electricity wholesale markets, and how these compare to previous trends and other similar markets over the past year.
This report does not evaluate policies in the energy market. It is an evidence-based view of how the markets have been performing given current arrangements.
You can view a summary of the report and download it in full below.
Wholesale report 2015: At-a-glance summary
Wholesale market overview
Before it reaches the consumer the vast majority of the gas and electricity that is consumed in GB must pass through a number of stages in the energy supply chain. The wholesale markets are where gas and power are bought and sold by several different types of participants.
Companies that produce or import energy, such as electricity generators and gas producers, sell their energy in the wholesale markets.
Companies that consume energy, such as large industrial companies or who have customers that consume energy (eg retail suppliers), buy the energy they need in the wholesale markets.
We consider the overarching objective of gas and electricity wholesale markets is to provide a dynamic and sustainable mechanism in which informed participants can confidently and efficiently buy and sell the energy they need at a price that reflects economic costs.
To achieve this, we monitor the market against a framework of four high-level features:
- Security of supply – critical for consumers, the economy and wider society.
- Access and liquidity – makes it easy for market participants to trade and facilitates competition.
- Competition – drives innovation and puts downward pressure on prices to ensure they are as low as possible.
- Investment and sustainability – ensures there are adequate, clean supplies of energy for current and future consumers.
Assessed together, this framework gives a broad view of how effectively the market is functioning.
Chapter 2: Trends in energy prices
GB gas prices have risen significantly over the past decade, as the amount of GB gas production declined. We are importing more gas so our gas prices are now driven by global factors.
Gas prices have fallen in the past few years, reversing some of the previous increase. This is because of falling oil prices, lower global gas prices and mild weather. However, wholesale gas prices are still considerably higher than when our supplies were mainly from the UK’s North Sea.
Electricity prices have largely followed the same trends as gas. This is because gas-fired power plants often set the electricity price. Power prices are also affected by the price of carbon, including the introduction of the Carbon Price Floor.
Chapter 3: Gas
A diverse range of sources supply GB with gas, and existing supply capacity is sufficient to meet demand in all but the most extreme circumstances. This provides us with secure supplies.
GB is one of the two best-developed markets in Europe (along with the Dutch market). It shows good liquidity. This means market participants can buy and sell gas easily.
The GB gas wholesale market is competitive, with low levels of concentration in both upstream supply and trading. The range of supply sources means that it would be difficult for any one firm to affect the market price. There are low levels of vertical integration.
GB has seen large investments in gas import infrastructure in the past decade, mostly notably in Liquefied Natural Gas (LNG). There has also been some investment in fast-cycle gas storage, but the market is providing limited signals for further investment in large long-range storage sites.
Chapter 4: Electricity
Capacity margins have been falling in recent years. The government has introduced several policy measures to address challenges to security of supply. Increased intermittent generation also makes it more complex to balance the system, so it is important market participants get the right price signals.
The GB market appears relatively illiquid when compared to some developed European markets. However, there have been some recent signs of improvement in firms’ ability to trade. You can view full details of this in our Wholesale power market liquidity: Annual report 2015.
There have been some encouraging trends regarding governance and the regulatory burden, with the number of code modifications falling over time. However, the complexity of many of the changes being introduced continues to pose a challenge. Finally, output from renewables continues to grow. This has contributed to GB’s emissions intensity (the amount of emissions per unit of electricity generated) falling to its lowest recorded level in 2014.