Liquidity is improving in the wholesale electricity market, Ofgem said today.
In an interim report following its intervention on 31 March, the regulator said early indications suggested its Secure & Promote reforms appear to be working. However, the regulator said it did not have a complete picture of the data and was conscious of being seen to perform a victory lap at half time.
Secure & Promote is Ofgem’s attempt to boost liquidity levels and ensure independent suppliers can access the products need to supply customers at a known price ahead of delivery.
Earlier this year it introduced a market making measure which compelled the big energy firms to trade within two, hour long trading windows, and also a set of rules governing how the big suppliers trade with small suppliers.
While stating that a full year of data was required to assess how well its measures were working, Ofgem said that indicators such as increasing churn (the number of trades compared to the amount of power consumed) and falling bid-offer spreads were positive signs.
However, bid-offer spreads (the difference between the buy and sell price) have been falling since 2010 and Ofgem is not yet getting the full picture, as its data is based on market close, and so only reflects spreads in the afternoon window.
The report also suggests that while trading continues outside of the two market making windows, the majority of trades do occur within them. Analysts had expressed concern that trades may be sucked into the windows leaving dead curves outside them as the intervention came into force.
Ofgem said trading volumes remained low, but were on an upward trend. The regulator added that smaller suppliers had also confirmed that the big firms were playing ball more readily, although credit and collateral remained their main challenges.