Abstract
Overview
Introduction
This brief examines the dynamic between the residential retail market and the
wholesale market where it outlines of the margins dynamic between retail and
wholesale activities in energy supply. Retail is considered as selling
electricity and gas to residential consumers. Wholesale is considered as power
generation, gas production and purchasing energy from wholesalers.
Scope
- Estimates on historic margins of gas and power retailers, investigating
both retail and wholesale margin.
- An extensive discussion on the main drivers in the market and how the
retail and wholesale markets are inter-linked.
- A detailed discussion on the historical developments of the energy supply
market with a focus on the period of 2001-2004.
- A forward statement [not figures] on margins of gas and power retailers
for 2005.
Highlights
Electricity companies have been forced into loss making position on gas by
Centrica, due to no gas structural hedge; on the other hand, Centrica
benefited from low wholesale power prices in 2001-02 and through buying power
assets to cover high prices in 2003-2004.
Centrica's decision to reduce customer losses, by not fully recovering
wholesale costs, will damage margins in 2005. This is similar to 2001 against
steepling gas costs.
Price discounting was evident in 2001-02, as entrants passed on low wholesale
power prices to customers; margin aspirations and high energy prices have
forced tariffs to narrow.
Reasons to Purchase
- Gain insight into the inter-relationship of retail and wholesale margins
over 2001-2004.
- Understand that margins are dictated by the market leader in balancing
retail and wholesale positions and how this affected margins over 2001-2004.
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