I wrote this post in October 2011, but it makes sense now as well since some independent generators have recently been reported as complaining that they cannot compete with the stranglehold of the Big Six. Their 'oligopoly' ensures that their generation gets priority for sale to their suppliers rather than other options - David Toke, August 2014:
Is Labour Energy spokesperson's Meg Hillier suggesting that the 'bix six' energy companies that control most of the UK electricity market will be split up into 'generation' and 'supply'? That would be a significant boost for prospects for more green and decentralised energy if she is saying this. However, a danger has already arisen that the issue is being diverted into a debate about whether we should have some sort of 'pool' arrangement for selling wholesale electricity or the current system of 'bilateral trading' where generators and energy suppliers find their own arrangements to buy and sell electricity in the wholesale market. That is a secondary issue.
The central point is that the current set-up whereby the big electricity generators also own the main electricity suppliers means that the big six make it very difficult for independent companies, whether generators or suppliers, to compete. The current regulations make a distinction between generation, distribution, transmission and supply of electricity. But they allow generators to own suppliers, which mean they own most of the suppliers! This has a significant impact on sustainable energy policy. The big six make the bulk of their profits from generating electricity - not in supplying it - so it will not usually be in the interests of the electricity suppliers to do anything that decreases, rather then increases, the production of electricity. But if the generators did not own the suppliers, if they were prevented from owning suppliers (or at least, suppliers to whom they sold energy) then the suppliers would have more of a choice to choose between making money by avoiding generation options and choosing demand side reduction measures instead.
This makes a big difference when it comes to balancing fluctuating renewable energy supplies. In California major electricity suppliers have installed 'smart' devices in commercial premises. Such devices mean that when demand for electricity is at peak periods the microchips can decide whether electricity, used in say heating or cooling services, can be temporarily suspended without affecting the services themselves. This avoids the need to buy in expensive electricity supplies and means that fewer power plant are needed to 'back up' the system. In the UK companies such as Flexitricity are working to implement this type of activity. See http://www.flexitricity.com/
What are called 'demand response' measures such as these (and there are various types of measures adding up to a lot of equivalent power plant capacity) have obvious advantages for balancing fluctuating renewable energy supplies. You can reduce the need for so-called 'back-up' plant. Yet the current market domination by the 'big six' electricity companies means that there is little interest in developing such strategies. The big six make their money from generating electricity from power stations, so if they control the suppliers they will want them to buy power from the power stations, not look for demand reduction options.
In addition to this it is possible to encourage electricity suppliers to be more interested in saving energy through conventional energy efficiency measures if they are not controlled by generators and made to sell as much power as they can. That involves a lot of detail, but we cannot even start thinking about it under present arrangements where the interests of the power plant producers are paramount.
Of course splitting up generation and supply reduces control, by the 'big six', of the market so that they are less able to disadvantage their smaller, often decentralised, competitors. Many more independent generators, combined heat and power plant and also those offering demand side measures could gain a foothold in the market without the dead hand of the big six. Also independent electricity suppliers would have more of a chance to compete.
Splitting up the big six is not going to green the electricity system by itself - we need regulated, real, feed in tariffs and energy efficiency measures for that - but it will introduce some genuine competition into the system and make some much needed green techniques more possible. That is what we need - green competition rather than the brown oligopolies we have at the moment.