Energy Price Freeze

Debate between Baroness Berger and Caroline Flint

Wednesday 6th November 2013 Commons Chamber

[Caroline Flint]

I will take one more intervention and then make some progress.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

I thank my right hon. Friend for kindly giving way; she is being very generous with her time. I imagine that she, like me, has gone to visit energy companies and has seen for herself that one, not far away from this building, has its generation department physically next door to all its displays and where it buys energy. Does she believe that that is the issue we now need to address, as stated in the motion?

[Caroline Flint]

My hon. Friend is right; she is talking about the trading floor in Victoria. It is interesting how closely the different parts of these organisations work together. In fact, some companies have welcomed the move to separate the generation and supply side, but we are not interested in a piecemeal approach with six different versions of what it should involve. That is why we need law that is consistent, transparent, and does the job.

At the moment, poor liquidity is recognised as the single biggest obstacle to improving competition in the energy market. If all electricity had to be traded via an open exchange, or a pool, that would create a level playing field that would enable any market participant to compete on price in order to retail power to the public. This would be different from the previous pool in two important respects. First, under the previous pool there were only two generators, who were therefore able to exert considerable influence on the market price and, indeed, to ratchet it up over time. Today, there are many more generators. Secondly, when the old pool was originally established in 1990, only generators were able to place bids, which again gave them excessive market power. Today, there is no reason why a two-way pool, with generators and suppliers both placing bids, could not be introduced. Indeed, if the Government look around the world, at the Nord pool in Scandinavia or the power exchanges in the United States, they will see plenty of examples of markets with more exchange-based trading of this kind that are more liquid, more transparent, and encourage greater competition.

Of course, we should do this in the most cost-effective way. Given the volumes that are already being traded on the day-ahead exchange, we would be open to creating a pool by requiring all generators and suppliers to trade 100% of their output on the N2EX exchange. If the Secretary of State does not agree, will he explain why he thinks that allowing these firms to do most of their trading in secret, behind closed doors, serves the public interest?