Seizing opportunities within the UK’s new power market

October 30, 2025 • READING TIME 5 MIN

The UK's power sector is in the midst of a profound transformation – one which is redrawing the landscape for industrial and commercial (I&C) energy users. For decades, the energy system has operated on an analogue model, with large, centralised power stations supplying electricity to vertically integrated suppliers, with I&C businesses operating as passive price takers. That era is over.

We are now in a new era where electricity is a digital product. This fundamental shift is creating a significant financial opportunity for businesses that are ready to move away from old procurement habits. But seizing this opportunity depends upon I&C consumers leveraging new technologies, freeing themselves from outdated, restrictive contracts and taking control of how they both buy and use their power.

The end of the analogue market

The shift from a centralised, analogue system to a decentralised, digital and data-driven marketplace is being driven by three key factors:

1. A changing market structure
The UK's power generation landscape has been fundamentally reshaped. Historically, a few large utilities owned around 80% of generation; today, this is less than 30%. This shift has been driven by the move from a handful of large, centralised power stations to distributed generation. The market is now fragmented and highly specialised, with different companies often focusing on solar, wind, batteries or gas-fired generation.

The increase in intermittent renewable energy sources, such as wind and solar plants, is also changing how electricity is priced. The market more frequently swings from oversupply, when an excess of wind power can push wholesale prices into negative territory, to periods where a lack of renewables generation means that expensive gas-fired plants set the market price.

In addition, the government’s support mechanism for new renewables and nuclear generation – the Contracts for Difference (CfD) system – has also changed the structure of the market. By providing a means for generators to hedge the price they can sell their power for, the CFD means they now longer need to sell the standard long-term baseload contracts that suppliers and large consumers relied upon for hedging, instead solely trading their power in the spot market. This is drastically reducing liquidity further out on the supply curve, and is adding to near-term volatility, making price hedging more complex than ever.

2. New technologies enabling consumer power
Meanwhile, new technologies and the electrification of transport, heating and cooling are providing I&C consumers with the means and the opportunity to respond to this more complex market environment.

Increasingly, they own assets – such as on-site battery storage, programmable refrigeration units and electric vehicle charging infrastructure – that can be deployed flexibly, both in terms of their consumption and, crucially, as sources of supply. These can be leveraged to operate as 'virtual power plants’, supplying power to the grid as well as allowing businesses to provide valuable services, such as grid balancing and frequency modulation services.

3. Regulatory changes unlock value
Historically, only a small number of very large players or specialist traders were active in the wholesale market. Regulatory changes mean that new players can participate in the market.

A key development is the emergence of the ‘virtual lead party’ (VLP), essentially an independent aggregator designed to bring third-party flexibility to the market. The introduction of BSC Modification P415 in November 2024 is critical; it grants VLPs direct access to the wholesale electricity market, enabling them to monetise flexible assets independent of the site’s primary energy supply contract.

As we noted in a previous blog, P415 is not without its drawbacks. However, this shift has undeniably made it easier for I&C businesses to get compensated for their flexibility – whether by decreasing consumption or injecting stored power during peak times, or by increasing consumption when prices are low or negative. While the new market structure now enables businesses to become proactive participants in wholesale markets, it does mean relying on new, specialist intermediaries to access value.

The broken status quo: why old contracts fail

Despite these changes, the way most I&C businesses procure energy hasn’t kept pace. The common supply contracts that most still use were initially designed decades ago. They were developed to help companies move away from restrictive fixed-price, day/night contracts by using a framework of blocks of baseload power, where the cost to the buyer of delivered power is the same in every half-hour block. They were a breakthrough at the time, but they are now failing to capture the new value in the system.

The main issue is that most existing contracts don’t allow the customer to re-trade the power that has been contracted for and thus don’t allow them to take advantage of intra-day price volatility.

A clear example of a common product that many buyers sign up to is volume tolerance. It allows the buyer to consume power within a tolerance band, of say 5% or 10% above or below the agreed volume in any given time period – in exchange for a premium. However, it locks the business out of valuable opportunities to profit from demand-side response – trimming its power consumption in response to high prices – or by exporting power from solar or battery systems.

Instead, we are beginning to see I&C customers taking advantage of the flexibility provided by new technologies – although doing so is not without its challenges and barriers to entry. First, it requires an understanding of the market, its different players and the pricing signals that influence value. It requires access to wholesale markets, and to the market intelligence to understand when to act. And it requires modernised supply arrangements, putting the right contracts in place to allow the business to take advantage of the flexibility assets it owns.

The need for active energy management

The UK electricity market is becoming irreversibly digital, decentralised and volatile, creating an urgent need to abandon the passive, analogue approach to energy consumption. The opportunity is not just about cost avoidance; it’s about establishing a strategy that generates revenue and manages exposure, turning energy into a competitive advantage.

Understanding the complexities of this new ecosystem – from the key entities and pricing signals to new hedging risks – is no longer a luxury, but a necessity. Over the next two blogs, we will unpack the structure of the UK power markets and set out who is shaping them.