Utility Week

Utility Week 7th March

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trading commitment for small suppliers – an open offer of favourable trading terms to make it easier for them to secure the energy they need. As part of this commitment, we offer to take on part of the credit risk to help smaller suppliers make these bigger forward purchases. We work with many small suppliers in this way and it is encouraging to see Ofgem requiring all large players to follow suit. But it's not enough for a mar- ket to be competitive – it needs to be trusted too. As a UK-listed company operating exclusively in Great Britain and Ireland, our accounts are a lot more straightforward and accessible than some others, but we hear loud and clear that even greater transparency is needed. Every year, all major energy companies are required to pub- lish a consolidated segmental statement – effectively a summary of rev- enues, costs and profit across generation and supply. These documents make it a lot easier to see where profits are being made, and Ofgem is now going a step further and ensuring that they will be reviewed by our 6 | 7th-13th March 2014 | UtILItY WEEK Comment O fgem has announced a number of measures to help improve liquidity and transparency in the energy mar- ket. There's more to be done, but it's a start. Liquidity and transparency are critical to any market if it is to work in the interests of consumers. Liquidity supports competi- tion and transparency means customers and stakeholders can see what's going on. The measures outlined by Ofgem are com- plex, but at a headline level they will require the largest suppliers and generators to trade fairly with smaller, independent suppliers and provide more details of the prices at which they trade electricity in advance. They will also revamp the mandatory reports on profits in generation and supply, published every year by the large companies, to make them "more robust, useful and accessible" . At SSE we are happy to work with anyone interested in making the market better for customers – in fact we're already leading the way on these issues. In 2012, we became the first energy com- pany to trade 100 per cent of the power we generate and 100 per cent of our demand through the day-ahead auction. This has helped transform liquidity in this market and made a real difference to smaller suppliers. We also went one further and made a Clearly a good step forward Ofgem's reforms to inject liquidity and transparency into the energy market are to be applauded, and reinforce steps SSE has already taken in that direction, says Alistair Phillips-Davies. Chief executive's view Alistair Phillips-Davies, SSE independent auditors. This will help give customers more confidence in the transpar- ency of the information. Although presenting this kind of infor- mation simply and concisely can help make it more accessible, there is a risk that it does not tell the whole story. For example, recently some stakeholders have pointed out that energy company profit margins appear to be higher in generation businesses than in supply businesses. The reason for this is that these businesses are a lot more capital intensive, so more money needs to be invested, and once this is factored in, the profits are much lower than they can appear. It's therefore encouraging to see Ofgem looking at a different metric – return on capital employed – which takes into account the amount a com- pany has invested, and the costs asso- ciated with this, to make its profit. The measures set out by Ofgem take us further on the journey towards a more liquid and transparent market that works in the interests of consumers. We'd like to see the measures extending to cover all established players in the market, but this is a step in the right direction. "It's not enough for a market to be competitive – it needs to be trusted too" Viewpoint Nina Skorupska "The EU2030 framework matters right now" The outcome of the discussions on the EU 2030 energy and climate framework will have a huge impact on the UK's attrac- tiveness as a destination for renewables investment. That's why I wrote to David Cameron and Ed Davey last week. The more attractive the policy framework for renewable heat, power and transport fuels, the lower the perceived investment risk and the lower the cost of capital. This in turn acceler- ates deployment of renewable ment come around to supporting an EU-wide 27 per cent renewa- bles target, but clearly renewa- bles targets are seen as a burden rather than an opportunity. We're pushing for binding targets as the best way to keep the momentum going. They won't undermine investment in nuclear and CCS (where is the other 73 per cent going to come from?) but they will boost renewables investment. Nina Skorupska, chief executive of REA technologies, and the associated benefits of emissions reduction and job creation. As tech- nologies deploy, the industry matures and reaps economies of scale, while also learning from experience and ongoing innova- tion to further bring down costs. Most bioenergy technologies and applications are already cheaper than nuclear power, for instance. If current learn- ing rates can be maintained, onshore wind and PV will join their ranks in the early 2020s, before Hinkley has generated any new power at all. The key thing is getting that 2030 framework right. It is encouraging to see the govern-

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