By Marcus Leach

Scottish and Southern Energy (SSE) is to introduce a new and transparent approach to the management of its electricity supply and demand requirements.

This approach will see SSE phase in the auction of all of its electricity supply and purchase all of its electricity demand, in the day ahead market.

SSE aims to begin this approach by trading a proportion of its total electricity supply and demand by Friday 14 October 2011 — with the expectation that it will reach 25% during November.

The volume of electricity transacted in this way will then be increased gradually over the next few months with the expectation that all of SSE’s electricity supply and demand will be traded in the day ahead market by the end of its current financial year (subject to market conditions and costs).

There has been a perception that SSE currently trades only the difference between its generation and its electricity demand in the wholesale day ahead market. Moving to an approach where gross volumes are clearly being traded, effectively means that SSE will eliminate this perception and provide a new level of transparency.

By selling its total supply of electricity and buying its total electricity demand simultaneously in the day ahead auction, SSE will significantly improve the liquidity, depth and credibility of the market, and assist in the creation of a robust and tangible pricing index.

Currently the GB day ahead electricity market trades volumes of around 40 GWh per day - with a further 200GWh through brokered markets. These volumes compare unfavourably with markets such as Germany and Nordpool which clear between 500 and 750 GWh daily. While SSE and other companies have been seeking to improve liquidity in the wholesale electricity market, Ofgem has stated that more needs to be done to increase the traded volumes. SSE’s average daily demand volume is around 165GWh, which means that its move to gross trading will transform the day ahead auction market.

SSE will continue to operate in the Forward market in the same way as it does now, including entering into long term contracts with independent generators and suppliers who require them.

SSE is the second largest electricity generator in the UK and last year generated over 47,500 GWh of electricity, which represents almost 15% of the UK electricity demand.

“This commitment from SSE will significantly improve the liquidity in the wholesale electricity market and help to address one of the perceived barriers to entry into the electricity supply market. If other energy companies adopt a similar approach, this commitment could lead to a transformation in the wholesale electricity market in Great Britain.," Alistair Phillips-Davies, SSE’s Generation and Supply Director, said.

“We believe this commitment represents the most significant change to the GB electricity market since the market arrangements were amended in 2005, to form the current market arrangements known as BETTA.

“Customers have demanded greater transparency around how we operate in the wholesale market. As well as improving liquidity, this approach will also improve the transparency of SSE’s activity in the wholesale market.”

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