The UK Energy Company Monopoly and CFDs

businessIt’s long been said that the UK’s energy market has been monopolised by the ‘big six’ energy companies; recent statistics have shown that these six firms power over two thirds of homes in various regions across the UK. In other words, if you move to a new area, two thirds of your neighbours are likely to be powered by the same supplier. In some areas, 85% of households use the same energy supplier.

If you live in southern Scotland, you will find that 82% of households are powered by Scottish Power, while in south Wales, SSE has an 82% share of the market. If you live in London, 74% of your neighbours will be with EDF, and in the West Midlands you’ll likely be with Npower, who supply energy to 65% of homes.

This situation has led to some well deserved criticisms that healthy competition in the UK energy market no longer exists. Energy prices are rising gradually but significantly every year, and without more firms offering to lower prices and undercut the big six, this isn’t likely to change in the coming years.

However, new proposals aimed at attracting investors into the UK energy sector are targeting this monopoly. The government has published an open consultation on the Electricity Market Reform, which proposes that Contracts for Difference, or CFDs, are utilised in order to attract smaller investments into the sector. A CFD works by essentially limiting the price risk on trading for investors; for more information on how CFDs work it wise to look at a CFD trading provider such as IG.

CFDs can make trading in the energy sector more profitable and less risky for smaller firms, especially those outside of the big six. With more CFDs being allocated, hopefully more independent energy generators will be attracted to the UK energy market and provide much-needed competition for the big six energy firms. With such a monopoly on energy already existing, what’s really needed in the market is the input from brave independent companies who have both the resources and the security to take some big risks which might just pay off.

CFDs are going to be an important element in the UK’s energy market as we go forward. With more pressure every year to reduce the use of fossil fuels and increase low-carbon energy output, smaller energy generators and independent suppliers will become more crucial as we seek not just to lower market prices but also to ensure that affordable energy is available for future generations.