How the electricity market works
Read our summary of how the UK electricity market works to get an idea of how EquiPower fits into the big picture. Find out more about who does what, how your electricity is supplied, and how the market forces operate.
The processes
The UK electricity market is split into four activities:
- Generation– producing electricity
- Transmission– moving electricity around the nation at very high voltage
- Distribution– delivering electricity to homes and businesses in a local region
- Supply– selling electricity to customers.
Ebico is the only not-for-profit supplier of electricity in the UK.
Generation
Currently most UK electricity is produced at power stations through processes using natural gas or coal. The government has recently announced plans to reduce this dependence on fossil resources by increasing nuclear and renewable generation. New nuclear power stations are planned to replace existing facilities, and to provide electricity with low overall CO2 emissions.
Meanwhile green, or renewable, energy is currently less than 2 per cent of the total UK supply, although an increase to at least 15 per cent will be required to meet Government targets for reduction in emissions by 2020. Renewable generation processes include hydroelectricity, wind farms, solar power, burning biomass and harnessing wave and tidal energy.
Transmission
This is the process of moving electricity from power stations to all parts of Great Britain via the very high voltage ‘supergrid’ (transmission) system. In England and Wales the supergrid is owned by National Grid. In Scotland, Scottish Power owns the system in the south while Scottish & Southern Energy owns the system in the north. All of these are known as transmission companies.
The entire network in Great Britain is operated by National Grid (the system operator). National Grid also has the job of making sure that there is always enough electricity being generated to meet our nation’s demand. You can take a look at how much electricity is being used in Britain right now.
Distribution
Great Britain is split up into 14 geographic areas for distribution purposes (see map). The wires and equipment that take electricity from the supergrid to individual premises are owned and operated by a different distribution company in each area. Some of these companies, however, are owned by the same ultimate holding company.
Supply
Suppliers organise the financial aspects of each individual supply: they don’t need to own any power stations or wires themselves. The suppliers buy bulk electricity from power stations, pay the transmission and distribution companies to transport electricity to customers, and bill customers for the electricity they use.
The operation
The functioning of the UK electricity market is based on two key principles: impartial access and competition.
Impartial access
The transmission and distribution processes are monopolies – that is, they are controlled and managed by a single company in each area. It’s therefore vital that the commercial terms offered by these companies are standardised, even-handed, and their prices regulated. The Office of Gas and Electricity Markets (OFGEM) regulate prices and a set of standard documents set the commercial relationship between these companies and the suppliers (the Grid Code, the Connection and Use of System Code or CUSC, and the Balancing and Settlement Code or BSC).
Competition
Today’s open market means that many companies are now allowed to sell electricity. In essence, these supply companies do business by buying electricity from power station owners and paying for its transport to their customers. They can then sell it at a different (usually lower) price than the company that previously had the monopoly of supply in the area.
Switch companies will naturally be readier with information about suppliers who pay them a fee than about suppliers who don’t
Switch companies are online companies that, in theory, offer a neutral comparison service. They enable customers to see quickly what different energy companies have to offer, and how much they could save. The comparison or ‘switch’ company will then sort out the switch to the new supplier for them.
However, suppliers are requested to pay the switch company a fee for every customer that chooses them via the switch company’s service. So currently, switch companies cannot offer a genuinely neutral comparison – because not all suppliers choose to pay switch companies.
Switch-site users should be aware that the switch company they’re using will naturally be readier with information about suppliers who pay them a fee than about suppliers who don’t.
The Office of Gas and Electricity Markets (OFGEM) is the body that oversees the processes of the competitive electricity supply market. If you have a comment about the competitive market you should contact OFGEM with your views.
If you have a problem with your supply company which has not been resolved you should contact Energywatch. The Government has announced that, in 2008, Energywatch is going to be merged with the National Consumer Council and Postwatch to form an overall consumer champion organisation called ‘Consumer Voice’.