1. 1 The UK Electricity Market Stuart Senior Chief Executive, ELEXON stuart.senior@elexon.co.uk

2. 2 Agenda A brief history of the electricity market in Great Britain Who is ELEXON? Is the market working? –a technical view –a consumer view What about the future?

3. 3 A brief history 1990 - privatisation of the industry and competition in generation and supply >1MW 1994 – competition in supply >100kW 1998 – full competition in supply 2001 – replacement of the Pool with the current trading arrangements - bilateral contracts and imbalance settlement

4. 4 Who is ELEXON? ELEXON manages the operation and governance of the wholesale market as set out in the Balancing and Settlement Code (BSC).

5. 5 Is the market working? A technical view - 1 10 5 0 2001200220032004200520062007 Total number of modifications per month

6. 6 Is the market working? A technical view - 2 5 0 2001200220032004200520062007 Number of pricing modifications per month

7. 7 Is the market working? A technical view - 3 96% 92% 2001200220032004200520062007 Percentage of non-half hourly energy settled on actual vs. estimated consumption 95% 94% 93%

8. 8 Is the market working? A consumer view The Regulator (ofgem) The Consumer Watchdog (energywatch)

9. 9 Ofgem’s view Vigorous competition on price Tariff innovation to win customers: –fixed, capped and index-linked –online and green Customers switching suppliers (4m households in 2006) Competition in service (fewer complaints) Source: Britain’s competitive energy market, ofgem fact sheet 69, 04.07.07

10. 10 energywatch’s view Concentrated regional markets (incumbents retain ~55% share) Price matching by the big verticals to avoid damaging price wars Switching driven in part by customer confusion and mis-selling, and the same people chasing early (late) movers Barriers to entry and expansion Source: An assessment of competition in the energy market, Prof. Stephen Davies University of East Anglia, 11 July 2007

11. 11 Electricity market shares 21% 19% 16% 14% 18% 12% <1% British Gas Powergen Npower EDF Energy SSE Scottish Power Others Source: Domestic Retail Market Report - June 2007, ofgem, 4 July 2007

12. 12 What about the future? Evolution Steering Group (ESG) http://www.elexon.co.uk/documents/Consultations/Consultation_on_Evolution_Steering_Group/ESG_Consultation.pdf Sources of change Annual Review Impact on the market Likelihood of change http://www.elexon.co.uk/documents/Consultations/Consultation_on_Evolution_Steering _Group/ESG_Consultation.pdf

13. 13 Sources of change Climate Change Nuclear SimplificationEurope Security of SupplyEnergy Costs Renewables Distributed generation Smart meters Micro-generation

14. 14 ESG Conclusions Impact on the market Low High Timescale - years 0105 Climate change Micro generation Smart metering Simplification

15. 15 Overall conclusions The GB electricity market is now >6 years old and works well …. but we continue to ‘fine tune’. Over the next few years, better data quality, through smart metering, will speed up settlement but no major system changes will be required. The next BIG market re-design will probably be a consequence of the climate change agenda.