Wholesale energy markets in 2016

Publication date
3rd August 2016
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 trends in the past few years.

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 2016: 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

Wholesale costs are currently the largest component of final consumer bills. So, understanding what drives changes in wholesale prices is crucial to protect the interests of present and future consumers. Over the past decade, both gas and power wholesale prices generally rose as GB moved away from self-sufficiency in gas supplies and now must compete in a global marketplace. Over this period, gas-fired generation has been setting the power price, and as such wholesale electricity prices have followed the wholesale price of gas.

Recently, this trend has changed and prices have fallen. This has been driven by a combination of the loosening of global gas markets, significant declines in the price of oil and local drivers such as mild weather, which has reduced demand.

Chapter 3: Gas

Security of supply

Existing gas supply capacity is expected to be capable of meeting demand well into the future. The diverse nature of GB supplies means that GB is resilient to all but the most extreme circumstances. From day to day, the market generally promotes efficient balancing, even though within-day demand is becoming more variable.

Market access and liquidity

Our indicators suggest that the GB wholesale gas market remains a mature, liquid market with high levels of churn, narrow bid-offer spreads and a growing number of active participants. There is a diverse range of products and platforms available for those looking to trade gas in GB. Historically, the majority of trading has been conducted “over-the-counter” through brokers, but in recent years gas trading has shifted towards exchange platforms.


When assessed using a range of standard competition metrics, the GB market appears to be competitive and outperforms virtually all relevant European and US benchmarks. The evidence shows low levels of concentration, robust market entry and exit, and low levels of vertical integration. 

Investment and sustainability

Market signals have incentivised significant investment in new import infrastructure in the past decade. Investment in seasonal storage has been muted, but this appears to be in line with market signals and the declining summer-winter spreads. On issues of governance and regulatory burden, there have been some encouraging trends, with the number of code modifications falling over time. However, the complexity of many of the new changes continues to pose a challenge. Lastly, from a sustainability perspective, demand has fallen in recent years. There are many likely causes of this, one of which is better energy efficiency.

Chapter 4: Electricity

Security of supply

Total generation capacity has been steady over recent years. 2015 and the beginning of 2016 saw a trend of decreasing reliance on generation from coal, replaced partly by greatly increased amounts of new renewable capacity. For this winter, margins remain manageable and National Grid has procured additional balancing services that it can use to help it balance the system if margins tighten.

Market access and liquidity

The GB market appears relatively illiquid compared to some international power markets, but there are signs that liquidity is improving since our ‘Secure and Promote’ reforms were implemented. Bid-offer spreads appear to be consistently narrower in recent years, and there is an increasing emphasis on near term trading which may be due to the difficulty of predicting the level of intermittent generation.


When assessed using a range of standard competition metrics, the GB wholesale electricity market appears reasonably competitive, with our analysis showing renewable generation being generally more profitable than conventional generation. Pivotality analysis suggests there is limited scope for generators to exert market power in the GB market.

Investment and sustainability

There has been a large increase in investment in renewable installations, which has led to emissions intensity from electricity generation falling to record low levels. As a way to ensure future investment in electricity generating capacity and the security of supply, the government introduced Capacity Market auctions, where generators can earn additional revenue in return for providing capacity at times of system stress.