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Q: New Trading Arrangements for Electricity (England and Wales) ( Answered 4 out of 5 stars,   0 Comments )
Question  
Subject: New Trading Arrangements for Electricity (England and Wales)
Category: Business and Money > Economics
Asked by: worldstrider57-ga
List Price: $10.00
Posted: 08 Jul 2002 08:09 PDT
Expires: 07 Aug 2002 08:09 PDT
Question ID: 37523
I need some very recent information on how the new trading
arrangements for the England and Wales electricity market, introduced
in 2001, differ from the old arrangements and whether they are
achieving their objectives.
Answer  
Subject: Re: New Trading Arrangements for Electricity (England and Wales)
Answered By: cobrien-ga on 08 Jul 2002 10:03 PDT
Rated:4 out of 5 stars
 
Hi Worldstrider57!

The New Electricity Trading Arrangements (Neta) were designed to
replace the old POOL arrangements for the sale of electricity in
England and Wales. The Pool worked by estimating each day how much
electricity would be used every half an hour the following day, using
a program called GOAL.

“Once the demand had been estimated, the NGC invited generators to bid
in capacity to meet that demand. They then scheduled the various
plants to generate, taking the cheapest first, then the next and so on
until the requirements for a given half-hour were met. This is known
as the MERIT ORDER.”
http://www.inencogroup.co.uk/neta1.html

However, the final company included in the merit order, i.e. the most
expensive, actually set the price paid to all the generators.
“One feature that often surprises customers is that the price bid by
the last generating set called into the MERIT ORDER, the so called
SYSTEM MARGINAL PRICE, determined the price paid to ALL generators
regardless of the price bid in.”
http://www.inencogroup.co.uk/neta1.html

The following Website provides more information on the old Pool
arrangements.
“Generators sell electricity into a "pool" and suppliers purchase out
of this pool. Participation in the market is through membership of the
Pool under the Pooling and Settlement Agreement.
As a consequence of the introduction of competition in supply, the
amount of electricity purchases attributed to each Supplier must be
calculated. This calculation is defined in the Pooling and Settlement
Agreement.’

http://www.elecpool.com/about/about_f.html


Neta came into effect on March 27th 2001. The main aim of Neta is to
reduce prices paid by consumers. The difference is that it turned the
previous ‘Pool’ into a commodity-type market. The regulator of the gas
and electricity markets in the UK is Ofgem (www.ofgem.com)
   
“The background to Neta (pronounced 'neater') is a fundamental switch
away from the rigid Pool system to a 'market system' in which
electricity 'suppliers', the old electricity boards, buy electricity
from generators, e.g. National Power (now Innogy) using a screen-based
system like that used in commodity trading. They have a range of
options ranging from long-term contracts for sources such as nuclear
or hydro, to small purchases of energy from intermittent sources as
and when it is offered.”

http://www.countryguardian.net/neta.htm


This website also goes on to explain the four areas that Neta will be
divided into: Forwards and Futures Market, where suppliers estimate
demand and make agreements with generators; power exchange, where
suppliers buy and sell electricity to cover what they were contracted
for; balancing system, where the operator makes sure the system is
secured and balanced; and finally settlements, where those in the
balancing mechanism pay penalties if their supply was under or over.

http://www.inencogroup.co.uk/new_electricity_trading_arrangement.html


The new electricity arrangements are also outlined quite
comprehensively in this PDF document:

http://www.ofgem.gov.uk/elarch/retadocs/golive_explained.pdf 

The two-page document includes a list of top ten concise facts on
Neta. According to the PDF, the main aim of Neta is to bring down
prices for consumers, and the document claims this has already begun.



Some other quotes explaining Neta’s basic principle: 

“Neta provides suppliers with the facility to buy power from
generators months, or even years, ahead, while a short term spot
market enables them to make up any last minute shortfalls in supply,
for example in the case of an unexpected cold spell. This means
suppliers can secure the best value prices on a long term basis whilst
also having the flexibility to meet short term contingencies.”

http://www.london-electricity.co.uk/energy/majorbusiness/neta.html

“The Neta arrangements, which will cost 100m to implement, are aimed
at providing a more competitive environment which should eventually
drive down domestic prices. They replace the current wholesale market
in England and Wales known as the electricity pool.
Under Neta, power and electricity companies are expected to sign their
own bilateral trading deals.”

http://www.guardian.co.uk/Archive/Article/0,4273,4132253,00.html

other sites about neta:
http://www.bmreports.com/bwx_home.htm
http://www.leeds.ac.uk/cem/seminars/lee/sld010.htm


Now to the second part of your question. You also ask has Neta been
effective. According to Ofgem’s document explaining how Neta works,
the prices had already begun to fall at the time of publication.

However, recent news from Energywatch, an independent consumer
organisation, appears to suggest that the price increase is not making
its way to consumers.

http://www.energywatch.org.uk/news_room/release.asp?article_id=146&article_type_id=1


Newspaper articles also indicate the same. 

The Guardian: April 15th, 2002:

‘Energywatch said the regulator, Ofgem, had calculated that wholesale
electricity prices had fallen by 18% since Neta began operations on
March 27 last year.

But the consumer body said that if this decrease had been passed
directly on to consumers, they would have seen savings of anything up
to 9% - about 568m. Generation costs account for half of the average
domestic bill.

But, it said, consumers had seen a drop of just 2.5%, or 153m,
compared with reported savings for industrial and commercial users of
between 15% and 20%.’

http://www.guardian.co.uk/Archive/Article/0,4273,4393954,00.html

The Guardian: May 12th, 2002:

‘[Energy Minister Brian] Wilson said: 'The workings of Neta are now
being reviewed after a year, and I am asking Ofgem for an explanation
of why wholesale prices of electricity have gone down so rapidly and
are not being passed on to consumers.'

http://www.guardian.co.uk/Archive/Article/0,4273,4411663,00.html



Neta has also been blamed in part for job losses in the sector. In
May, British Energy cut 400 jobs.

‘[British Energy] said that Neta, designed to benefit the consumer,
had added to downward pressure on electricity prices and made it
imperative that overheads were reduced across its nuclear power
business. ‘

http://www.guardian.co.uk/Archive/Article/0,4273,4186817,00.html

Neta has also affected green energy alternatives
http://www.countryguardian.net/neta.htm




So whether Neta has worked or not all depends on the viewpoint you
take. On one hand, it has reduced wholesale prices, but since
consumers have not seen these price reductions, it has failed in part
of its objective.

Also, from the point of view of green energy providers, Neta has not
done them much good. With wind energy, it is not easy to predict what
power they will be able to offer in a few hours. This is one of Neta’s
basic requirements.

Search strategy:
“New electricity trading arrangements”
“NETA”
“POOL”

If you need any further information, please feel free to post a
clarification

cobrien-ga
worldstrider57-ga rated this answer:4 out of 5 stars
I thought the answer was comprehensive, logically structured and well
answered. You also found a good deal of useful information in just a
couple of hours. Overall, a very good response.

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