Abstract
This chapter aims to unpack how the price of industrial electricity is determined within the liberalised power market in Great Britain in the context of the ongoing reform of the Chinese power sector, initiated by the March 2015 No. 9 document.
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Notes
- 1.
In the residential sector, there is retail price cap (known as ‘safeguard tariff’). However, this is a maximum tariff. Actual tariffs can be lower than this.
- 2.
Se e Digest of United Kingdom Energy Statistics 2018, (BEIS 2018).
- 3.
See, for exam ple, Vona and Nicolli (2014).
- 4.
Se e DECC (2011).
- 5.
Se e DECC (2009).
- 6.
Se e Henney (1994) for the definitive discussion of what happened (and why) at the time of privatisation to the structure of the electricity industry. For an excellent summary of the GB experience following privatisation, see Newbery (2000, 2005). For a discussion of the electricity privatisation in the context of the general privatisation programme in the UK, see Pollitt (1999), and for a discussion of electricity liberalisation in the global context of energy market liberalisation, see Pollitt (2012a).
- 7.
- 8.
- 9.
- 10.
- 11.
The government does own decommissioning nuclear power plants, and some test reactors. Municipalities have limited interests in local electricity companies, for example, Bristol Energy.
- 12.
- 13.
S ee Sweeney (2002).
- 14.
For a discussion of the operation of this market, see CMA (2016a).
- 15.
See London Energy Brokers Association: www.leba.org.uk
- 16.
- 17.
See for example Sioshansi et al. (2008).
- 18.
- 19.
- 20.
- 21.
- 22.
See https://www.ofgem.gov.uk/gas/retail-market/retail-market-monitoring/understanding-profits-large-energy-suppliers. Ofgem requires the production of consolidated segmental accounts which show the profits of the large integrated firms in each segment of the GB market.
- 23.
- 24.
- 25.
Se e Evans and Green (2003) for analysis of what caused the fall in wholesale prices around this time.
- 26.
See, for example, Offer (1998).
- 27.
The moratorium was short-lived and not particularly effective. It was abandoned in mid-1999 and was never a complete ban.
- 28.
Se e Hirst (2018) for a discussion of the history of carbon price floor in the UK.
- 29.
- 30.
See Chap. 3 on Guangdong.
- 31.
S ee Ofgem (2016) as an example of regulatory concerns about market liquidity.
- 32.
- 33.
Se e Pollitt (2018a) for a discussion of the development of the single electricity market in Europe.
- 34.
Se e Mansur and White (2012) on the benefits of extending the PJM market.
- 35.
See https://www.ofgem.gov.uk/environmental-programmes/eco/overview-previous-schemes (Accessed 27 November 2018) for more information.
- 36.
Se e Henney (2011).
- 37.
S ee Nillesen and Pollitt (2011) for a detailed analysis of the impact of ownership separation of the electricity distribution business from retail electricity in New Zealand.
- 38.
Monthly switching has more than doubled in New Zealand since the roll-out of smart meters began. See the statistics at: https://emi.ea.govt.nz/Retail/Reports/Tagged/consumer-switching?_si=v2. Accessed 27 November 2018.
- 39.
- 40.
- 41.
This factor was intended to include all relevant factors which might drive the level of efficient revenue (including the costs of quality, or the relative movement in labour/capital costs vis-Ã -vis general inflation).
- 42.
For a description of Ofgem’s regulatory process for electricity distribution firms, s ee Jamasb and Pollitt (2007).
- 43.
See for an example of the menu regulation scheme, Ofgem (2009a, p. 120).
- 44.
Se e Ofgem (2009b, p. 63) for a discussion of quality incentives.
- 45.
Se e Ofgem (2014b, p. 44), which shows that electricity distribution companies could potentially double their real returns on assets if they received the maximum possible incentive payments.
- 46.
Se e National Grid (2018, p. 13).
- 47.
Se e National Grid (2018, p. 8).
- 48.
For a history of the discussion of locational signals within the GB power system, se e CMA (2016b).
- 49.
- 50.
Se e Pollitt (2012b) on the history of ISOs in the US.
- 51.
- 52.
- 53.
These offers and bids are all of the actions taken by the system operator in a half-hour period. The flagged actions in blue reflect actions taken for system specific reasons which could be due to frequency control or constraint management. The unflagged actions in orange may have been wholly or partly necessary for energy balancing. The NIV is measured looking at the net impact of all actions taken by the SO. It shows that there were 475.5 MWh of offers and 245 MWh of bids taken, so the market was short by 230.5 MWh. The system imbalance price is the marginal net imbalance offer required to solicit 230.5 MWh of net supply, which in this case is £60/MWh. Given that all those parties who were out of balance are subject to this £60/MWh charge and the system operator is on average paying less than this for taking energy balancing actions, imbalance charges result in net receipts from the metered parties (hence the negative contribution to overall balancing charges in Table 4.4).
- 54.
S ee Newbery (2012) for a discussion of this.
- 55.
There are t−1 years capacity auctions as well.
- 56.
- 57.
S ee Anaya and Pollitt (2018) for a discussion of co-optimisation.
- 58.
Domah and Pollitt (2001) fi nd significant gains for society following the privatisation and incentive regulation of the regional electricity companies (RECs) that owned the distribution and incumbent retail assets.
- 59.
Se e Pollitt (2018b) for a discussion.
- 60.
S ee Küfeoğlu and Pollitt (2018) for some analysis of the impact of EVs on who pays residential distribution charges in GB.
- 61.
See, for example, National Grid and UKPN’s Power Potential Project. The background issues to this project are discussed i n Anaya and Pollitt (2018).
- 62.
- 63.
- 64.
S ee Grubb and Drummond (2018).
- 65.
S ee Helm (2017, p. 101).
- 66.
- 67.
- 68.
- 69.
Se e Wilson and Staffell (2018).
- 70.
Se e Newbery (2017).
- 71.
Se e Bohn et al. (1984).
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Additional Useful Resources on UK Electricity Reform
Oral History of Electricity Privatisation: British Library archive of key players:
This online archive is extensive with many recordings from different players; some are shown below:
 • Cecil Parkinson – Secretary of State for Energy
  – http://sounds.bl.uk/Oral-history/Industry-water-steel-and-energy/021M-C1495X0021XX-0001V0
 •  John Wakeham – Secretary of State of Energy
  – http://sounds.bl.uk/Oral-history/Industry-water-steel-and-energy/021M-C1495X0048XX-0001V0
 • William Rickett – Civil Servant involved with privatisation
  – http://sounds.bl.uk/Oral-history/Industry-water-steel-and-energy/021M-C1495X0033XX-0004V0
 • Brian Pomeroy – Advisor on Electricity Privatisation
  – http://sounds.bl.uk/Oral-history/Industry-water-steel-and-energy/021M-C1495X0048XX-0001V0
 • Fiona Woolf – Advisor on Electricity Privatisation
  – http://sounds.bl.uk/Oral-history/Industry-water-steel-and-energy/021M-C1495X0047XX-0001V0
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Pollitt, M.G. (2020). How Industrial Electricity Prices Are Determined in a Reformed Power Market: Lessons from Great Britain for China. In: Reforming the Chinese Electricity Supply Sector. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-39462-2_4
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