Ofgem has published proposals to allow smaller, independent energy suppliers to gain entry to the energy market currently dominated by the big six.

They are intended to force British Gas Centrica, EDF Energy, E.ON, RWE Npower, Scottish Power and SSE to trade fairly with smaller suppliers, by selling to them fuel they have bought up to two years in advance on the forward market, at a price close to that which they paid for it.

At present, only a low proportion of fuel bought in the forward market is traded, since many of the big six are also generators, and consequently tend to hang onto it.

This is also true of the two largest independent power generators, Drax Power Ltd and GDF Suez Energy UK, who will be forced to do the same thing.

This theoretically will introduce more liquidity into the market, and mean that independent suppliers and generators will have many more chances to buy and sell the fuel they need to compete effectively.

Wholesale prices will be published to encourage transparency and make the market clearer for all players. Firms will be fined if they are found to be in breach of these new licence conditions.

Due to previous pressure from Ofgem, the big six now trade at least 30% of their power output in the near-term markets. These new proposals are intended to make similar changes in the forward market.

Andrew Wright, senior partner for markets at Ofgem, said: “Our aim is to improve consumer confidence and choice by putting strong pressure on prices through increased competition in the energy market.

"Ofgem’s proposals will break the stranglehold of the big six in the retail market and create a more level playing field for independent suppliers, who will get a fair deal when they want to buy and sell power up to two years ahead.

“Greater price transparency will assist investors seeking to build new generation plant and help secure supplies for consumers, who are also set to benefit from a simpler, clearer and fairer energy market thanks to our retail market reforms.”

Ann Robinson, director of consumer policy at uSwitch.com, welcomed the move: “This is exactly the shot in the arm that the competitive market needs if it is to start working effectively for consumers. Today’s move should pave the way for new suppliers to come into the market, creating more choice and competition, which should ultimately translate into lower prices for consumers”.

The reforms have also been welcomed by Ed Davey, secretary of state for energy and climate change, who said: "I want our energy market to be as competitive as possible. An increased role and level playing field for independent suppliers and generators is precisely what will help drive the competition that delivers better value for consumers and businesses.

“Independent suppliers will have greater access to the power generated by the big six and other large power producers, enabling them to purchase and deliver cheaper energy to consumers.

“Ofgem’s proposals to increase transparency in the way electricity is traded will give independent generators a foothold in the UK energy market and encourage new players to invest. I encourage companies to work with Ofgem to implement these proposals as swiftly as possible."

He added that if Ofgem's proposals were found to be delayed or frustrated by the industry, then the government would use the energy bill to take necessary measures to improve the situation.

Competition might even have the effect of being down prices, about which yesterday the industry was reported to be pessimistic.

Story: David Thorpe, News Editor