By the OGJ Online Staff
HOUSTON, Mar. 23�Barring a last-minute glitch, the UK will institute commodities style trading of electricity Tuesday, eliminating the widely criticized Electricity Pool.
The Office of Gas and Electricity Markets (Ofgem) said more than 150 companies have qualified to participate in the new market, indicating liquidity in bilateral and exchange markets.
The New Electricity Trading Arrangements (NETA), which cost Ofgem more than �100 million pounds to set up, is expected to help drive electricity prices down. The electricity industry also spent heavily on the project, installing complex dealing systems and setting up round-the-clock trading desks. The costs rose as software problems delayed NETA's launch.
Ofgem has projected a 10% decline in prices in the UK's �7.5 billion ($10.69 billion US) wholesale electricity market. But industry argued prices could rise in the short term. But Ofgem said NETA has already put pressure on wholesale prices, citing declines of 15% in financial forward power markets.
NETA's will mark the end of the Electricity Pool, an electricity clearinghouse set up in the early 1990s when the UK electricity industry was privatized. But many critics said the system allowed large generators to manipulate prices.
On the International Petroleum Exchange, Isabella Kurek-Smith, head of IPE Utility Markets, said the contract will be cleared by the London Clearing House, which will act as central counterparty to all trades.
Margin offsets with natural gas futures will be considered once sufficient price history has built up, according to the IPE.
The electricity futures contract will be a base load contract consisting of daily, balance of the month, monthly, quarterly, and seasonal contracts. IPE customers will be able to act as an energy contract volume notification agent themselves or appoint a third party if they wish.
Trading fees have been set at a level equivalent to 0.1 pence/Mw-hr. The fee for a monthly contract will be 72 pence/lot side, and for a daily 2.5 pence/lot side. The IPE said more than 30 current natural gas trader are ready to begin trading the power contract.
