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    A Look at Britain's Troublesome Energy Market

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    The UK's gas and electricity market has proven to be somewhat troublesome in recent years, and the markets' regulators, Ofgem and Ofgas, have implemented measures aimed at increasing competition within the market, to benefit consumers.

    Six firms, known as the "big six," including the likes of British Gas, SSE, and Scottish Power, supply the bulk of the energy consumed in the UK.

    In a bid to reduce the complexity of energy tariffs, which were notoriously difficult to understand, and determine their individual value for money, Ofgem imposed regulation which limited the number of different tariffs energy suppliers could offer.

    Despite such initiatives, some economists and government officials still believe that the UK energy market doesn't favor the consumer, both households and businesses, or operate in their best interests.

    On a separate note, in early 2016, it was warned that power shortages were a possibility in the coming winter, due to the closure of some power stations, and increasing demand. The warning was issued by the Industrial Communities Alliance (ICA), an organization which represents 60 local authorities across the UK.

    Five power stations, which had a combined generating capacity of around 7,000 MW of electricity, were planned not to be in operation for the previous winter.

    "The problem — and it is a problem for every electricity consumer in the country — is that if all these closures go ahead, there won't be enough generating capacity to keep the lights on next winter. Beyond the five power stations under threat, there are five more coal-fired power stations left on the grid — Aberthaw, Cottam, Drax, Ratcliffe and West Burton. How long before they too are proposed for closure?" the ICA said in a published document.

    Skeptics have dismissed these claims.

    Given the apparent threat of power shortages, and the growing international effort to tackle climate change, it makes sense for policies aimed to reducing demand for electricity to be implemented.

    Increasing the cost of a unit of electricity as a consumer uses more and more units in a particular time frame (a day, week or month) could successfully reduce energy usage, aiding the government in achieving objectives related to environmental sustainability, and tackling climate change.

    Essentially, the first units used would be significantly cheaper than current prices, and as more units are used, it becomes less and less affordable. Such a pricing strategy would act a significant incentive for firms and households to reduce their energy consumption, due to potential financial savings.

    This policy would heavily penalize consumers who use large amounts of energy. It would also encourage businesses and domestic consumers to purchase more energy efficient devices and appliances, as the cost of purchasing such products may be justified by savings in their energy bills. 

    It's very difficult to accurately estimate how the "big six's" profits would be affected, as it is dependent on how the cost per unit varies based on the number of units used, how consumers react, and adjust their habits in response to the pricing strategy.

    It seems that the regulator and the British government need to implement more regulations which directly restrict the power of the cluster of firms which dominate the UK energy market, as previous policies, such as helping consumers switch energy providers, haven't had a large-enough impact.

    The views expressed in this article are solely those of the author and do not necessarily reflect the official position of Sputnik.

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    Tags:
    consumers, energy consumption, energy tariffs, oil and gas, power, energy market, Industrial Communities Alliance (ICA), Britain, United Kingdom
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