Capacity and market abuse

There has been a lot of comment in the last month around the impending generating capacity gap based on Ofgem’s projected 4 per cent reserve margin forecast. Why people should be surprised by this when over 15 per cent of the system’s dependable generation is removed, before a stable investment environment is in place to facilitate its replacement.

The irony is that a Tory led UK government is introducing the closest thing we have had to a planned energy market for a generation. But it is still one that relies on private sector investment. Planning requires government to actually plan and the continued dithering and row between the Treasury and DECC, doesn’t help market uncertainty.

These concerns have reached the general public. In a poll for the IME two-thirds expressed concern about blackouts. Dr Tim Fox, head of energy and environment at IME, said: “These results show here is a severe lack of public confidence in the government’s confused energy policy.” He added that the government must “stop playing politics” with energy policy, and that “confidence in government energy policy has been damaged by its mixed messages on low-carbon energy policy and uncertainty over its support for a new nuclear build programme”.

Capacity concerns have been added to by alleged market manipulation highlighted by whistleblowers and others. The Energy Secretary has announced new powers for Ofgem to tackle this. Under the European Union Regulation on Wholesale Energy Markets Integrity and Transparency (REMIT) regulation, Ofgem will be able to access information, inspect premises and impose unlimited fines for those who break to law and abuse the wholesale gas and electricity markets.

The regulations prohibit market abuse in the form of insider trading and market manipulation, and imposes an obligation on market participants to disclose inside information. The regulation comes into force from 29 June and stakeholders have until 29 August to respond to the consultation on Ofgem’s use of its new REMIT powers.

The energy secretary also announced that Ofgem and the FCA are continuing their analysis of the allegations into manipulation of the gas markets raised in November 2012. A whistleblower working for one of the price reporting agencies, ICIS-Heren, claimed to have seen attempts by unscrupulous traders to submit false data to the price reporting agency. Earlier concerns were raised in a report last year by the International Organization of Securities Commissions (IOSCO). The French oil group Total said in a letter to IOSCO: “Sometimes the criteria imposed by PRAs do not assure an accurate representation of the market and consequently deform the real price levels paid at every level of the price chain, including by the consumer.”

The Government has been slow to introduce the REMIT proposals and the regulators are not exactly rushing matters in this investigation. All of which leads many in the industry to believe that they are not serious about stamping out market abuse.

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