Electricity buyers set for price hike

18 October 2000
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19 October 2000 | David Arminas

Utilities buyers could face a double set of electricity price increases for the April negotiations, after energy regulator Ofgem postponed the New Electricity Trading Arrangements (Neta) this month.

"The long-term message for buyers is they could see an increase," Ian Dobson, chairman of the CIPS energy committee, told SM. In April, the climate change levy will come in with an expected 15 per cent hike, he said, adding that electricity forward agreement (EFA) prices have also been rising.

When it takes effect, Neta is expected to give a 10 per cent reduction in electricity prices and many suppliers have already passed on this saving to clients in their October contracts, in anticipation of Neta.

But with Neta postponed, suppliers will not get that reduction themselves from generators as originally believed during the October contract rounds.

Prices will reflect this during negotiations up to March for April contracts, Dobson said. Ofgem has set the end of January as the earliest time that Neta could be functioning, but this is uncertain. Originally, testing of Neta's electronic systems was to have been completed in September for operation in October, and subsequently pushed back to 21 November.

"The rest of the industry had factored this time delay for Neta into contract negotiations," Andrew Crawford, operations manager for consultants John Hall Associates, said. EFA prices for base-load electricity for the year starting in April 2001 are nearly £20/MWh, up from £18/MWh six months ago.

Few analysts believe that Neta will be operational in time for negotiations in February and March for the April contracts. "Ofgem has said January at the earliest, but don't hold your breath," Crawford said.

Neta heads Ofgem's plans for increased competition within the electricity market and buyers have feared that delays to its introduction could result in increased prices.


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