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Electricity Industry - UK - December 2015

“Widespread smart meter deployment should allow energy suppliers to offer more innovative and tailored tariffs and products. The technology will make it possible for suppliers to offer “time‑of‑use tariffs” to customers, charging little or nothing for power at off‑peak times, such as the weekend, and higher prices on high‑demand weekdays.”

– Claudia Preedy, B2B Analyst

This report will explore the following key questions facing the UK electricity supply and distribution industry:

  • What are the key drivers for network investment in the electricity distribution sector?
  • How do legislative changes affect the industry?
  • What challenges does the transition to a low carbon economy present to distribution network operators (DNOs)?
  • What are the expenditure plans of individual DNOs for the next price control period RIIO-ED1?
  • What are the major challenges facing the electricity supply sector?

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Table of contents

  1. Executive Summary

      • The market
        • Gross capital spending driven by asset replacement and refurbishment activity
          • Figure 1: UK gross capital expenditure by the electricity distribution network operators, 2010/11-2014/15
        • Eastern Power Networks (EPN) and WPD East Midlands report highest level of capital expenditure
          • Figure 2: Total expenditure allowance for RIIOED1 in Great Britain, by company, 2015/162022/23
        • Network investment set to fall during current price control period RIIO-ED1 2015-23
          • Increased focus on the development of smart grids to facilitate the transition to a low-carbon economy
            • Figure 3: Forecast network investment of the electricity distribution network operators in Great Britain, 2015/16-2022/23
          • Smaller suppliers making considerable inroads in electricity supply market
            • Fixed tariffs becoming more popular, but many consumers remain on more expensive standard tariffs
              • Wholesale costs account for largest proportion of electricity bill
                • Figure 4: Breakdown of average domestic electricity household bill, 2014
              • Market factors
                • DNOs subject to price controls set by industry regulator Ofgem
                  • Decarbonisation of UK economy to increase loads placed on distribution network
                    • Rapid growth in distributed generation due to rise in renewables generation
                      • Renewable Heat Incentive (RHI) promotes take-up of heat pumps
                        • Companies
                          • Electricity distribution industry
                            • Introduction of competition in network connections
                              • Electricity supply industry
                                • What we think
                                • Key Insights

                                    • What are the key drivers for network investment by electricity distribution network operators (DNOs) over the coming years?
                                      • What are the drivers behind the DNOs’ increased focus on developing smart grids?
                                        • What opportunities do smart meters offer for energy suppliers?
                                          • How does Ofgem intend to encourage competition for the installation of new connection assets?
                                          • Introduction

                                              • Definitions
                                                • Methodology
                                                  • Abbreviations
                                                  • Market Positioning

                                                    • Great Britain
                                                      • Northern Ireland
                                                      • Economy

                                                        • Overview
                                                          • Figure 5: UK GDP quarterly development, 2003-15
                                                          • Figure 6: UK GDP in economic downturns and recoveries since 1979
                                                        • Inflation
                                                          • Interest rates
                                                            • Business investment
                                                              • Figure 7: UK GFCF 2003-15
                                                          • Market Factors

                                                            • Price controls
                                                              • Environmental and legislative factors
                                                                • Climate Change Programme (including Climate Change Levy and Agreement)
                                                                  • Carbon Plan
                                                                    • Carbon Emission Reduction Target (CERT) and Community Energy Saving Programme (CESP)
                                                                      • Energy Company Obligation (ECO)
                                                                        • Electricity Market Reform
                                                                          • Renewables Obligation
                                                                            • RO support closes two years early for large-scale solar developments and one year early for onshore wind farms
                                                                              • Feed-in Tariffs (FITs)
                                                                                • The Renewable Heat Incentive
                                                                                  • Combined Heat and Power
                                                                                  • Distribution Industry Structure

                                                                                    • Key points
                                                                                      • Industry overview
                                                                                          • Figure 8: Ownership of the distribution network operators in the UK, as of November 2015
                                                                                        • Regional electricity demand
                                                                                          • Figure 9: Electricity sales and customers, by region, Great Britain, 2013
                                                                                          • Figure 10: Regional proportional importance of electricity consumed in Great Britain, 2012
                                                                                        • Electricity Consumption by end-use sector
                                                                                          • Figure 11: Analysis of electricity usage, by type of industry, UK, 2009-14
                                                                                          • Figure 12: Analysis of electricity usage, by the commercial sector, 2009-14
                                                                                          • Figure 13: Analysis of electricity usage, by the commercial sector, 2014
                                                                                        • Scotland
                                                                                          • Northern Ireland
                                                                                          • Electricity Distribution Sector Overview

                                                                                            • Key points
                                                                                              • Overview
                                                                                                • Figure 14: Distribution network operators in Great Britain, by region, 2015
                                                                                              • Size of UK distribution networks
                                                                                                • Figure 15: UK distribution networks, 2014/15
                                                                                            • Electricity Distribution Market Trends

                                                                                              • Key points
                                                                                                • Introduction of competition in network connections
                                                                                                  • Trends in UK electricity supply
                                                                                                    • UK facing power capacity crunch
                                                                                                      • Figure 16: Analysis of electricity supply in the UK, 2010-14
                                                                                                      • Figure 17: Analysis of electricity supplied in the UK, by type of fuel used in generation, 2010-14
                                                                                                      • Figure 18: Analysis of electricity supplied in the UK, by type of fuel used in generation, 2014
                                                                                                    • Smart Grid Development to Support Low Carbon Economy
                                                                                                      • Renewable energy generation
                                                                                                        • Figure 19: Renewable electricity generation in the UK, 2010-15
                                                                                                        • Figure 20: Renewable electricity generation in the UK graph, 2010-15
                                                                                                      • Distribution price control review
                                                                                                        • The Low Carbon Network Fund (LCN)
                                                                                                          • Electricity North West
                                                                                                            • Northern Powergrid
                                                                                                              • SP Energy Networks
                                                                                                                • SSE
                                                                                                                  • UK Power Networks
                                                                                                                    • Western Power Distribution
                                                                                                                    • Electricity Supply Sector Overview

                                                                                                                      • Key points
                                                                                                                        • Market background
                                                                                                                            • Figure 21: Proportion of domestic electricity customers by supplier type, by region, 2000 and 2015
                                                                                                                            • Figure 22: Number of supplier switches in the domestic gas and electricity markets and share of small suppliers, Great Britain, Q1 2010-Q2 2015
                                                                                                                            • Figure 23: Number of supplier switches in the domestic gas and electricity markets, Great Britain, January 2010-June 2015
                                                                                                                        • Electricity Supply Market Issues

                                                                                                                          • Key points
                                                                                                                            • Reforms promoting increased competition and supplier switching in retail energy market
                                                                                                                              • ‘Big six’ suppliers come under fire for charging high prices in 2013
                                                                                                                                • Energy suppliers announce price cuts in 2014 and early 2015, reflecting falling wholesale costs, cuts to green levies, and increased competition
                                                                                                                                  • Breakdown of average gas and electricity bill
                                                                                                                                    • Figure 24: Breakdown of average domestic electricity & gas household bill, 2014
                                                                                                                                    • Figure 25: Breakdown of average domestic electricity bill, 2014
                                                                                                                                  • Smaller suppliers gaining market share
                                                                                                                                      • Figure 26: Domestic gas supply market shares in Great Britain, by company 2010-15
                                                                                                                                      • Figure 27: Domestic electricity supply market shares in Great Britain, by company 2010-15
                                                                                                                                    • Lower prices, customer dissatisfaction with the ‘big six’, and differentiation strategies are driving the growth of small suppliers
                                                                                                                                      • Poor customer service and complaints handling remains an industry-wide issue
                                                                                                                                        • CMA Energy Market Investigation
                                                                                                                                          • Smart Meter Roll-out programme
                                                                                                                                            • Switching rates in the SME sector also set to increase
                                                                                                                                            • Capital Expenditure

                                                                                                                                              • Key points
                                                                                                                                                  • Figure 28: UK gross capital expenditure by electricity distribution network operators, 2010/11-2014/15
                                                                                                                                                  • Figure 29: UK gross capital expenditure by the electricity distribution network operators graph, 2010/11-2014/15
                                                                                                                                                  • Figure 30: UK gross capital expenditure by the electricity distribution network operators, by company, 2010/11-2014/15
                                                                                                                                                • Forecast capital expenditure
                                                                                                                                                  • Capital expenditure allowance 2010-15
                                                                                                                                                    • New price control framework based on Revenue = Incentives + Innovation + Outputs effective from April 2015
                                                                                                                                                        • Figure 31: Total expenditure allowance for RIIO-ED1 in Great Britain, by company, 2015/16-2022/23
                                                                                                                                                        • Figure 32: Total expenditure allowance for RIIO-ED1 in Great Britain graph, by company, 2015/16-2022/23
                                                                                                                                                        • Figure 33: Forecast network investment of the electricity distribution network operators in Great Britain, by company, 2015/16-2022/23
                                                                                                                                                      • DNOs
                                                                                                                                                        • Western Power Distribution
                                                                                                                                                            • Figure 34: Core activity costs by Western Power Distribution, by type, 2011-15 and 2016-23
                                                                                                                                                            • Figure 35: Asset replacement expenditure by Western Power Distribution, by type and company, 2016-23
                                                                                                                                                            • Figure 36: Capital expenditure planned by Western Power Distribution for the West Midlands, by type, 2016-21
                                                                                                                                                            • Figure 37: Capital expenditure planned by Western Power Distribution for the East Midlands, by type, 2016-21
                                                                                                                                                            • Figure 38: Capital expenditure planned by Western Power Distribution for South Wales by type, 2016-21
                                                                                                                                                            • Figure 39: Capital expenditure planned by Western Power Distribution for the South West by type, 2016-21
                                                                                                                                                            • Figure 40: Activity costs by UK Power Networks, 2011-15 and 2016-23
                                                                                                                                                            • Figure 41: Activity costs by UK Power Networks graph, 2011-15 and 2016-23
                                                                                                                                                            • Figure 42: Asset investment by UK Power Networks, by type, 2011-15 and 2016-23
                                                                                                                                                            • Figure 43: Capital expenditure planned by London Power Networks, by type, 2016-21
                                                                                                                                                            • Figure 44: Capital expenditure planned by Eastern Power Networks, by type, 2016-21
                                                                                                                                                            • Figure 45: Capital expenditure planned by South Eastern Power Networks, by type, 2016-21
                                                                                                                                                            • Figure 46: Activity costs by Northern Powergrid, by type, 2011-15 and 2016-23
                                                                                                                                                            • Figure 47: Comparison of average annual activity costs by Northern Powergrid, 2011-2015 and 2016-23
                                                                                                                                                            • Figure 48: Network investment by Northern Powergrid, by type, 2011-15 and 2016-23
                                                                                                                                                            • Figure 49: Capital expenditure by Northern Powergrid (Northeast), by type, 2011-15
                                                                                                                                                            • Figure 50: Capital expenditure planned by Northern Powergrid (Northeast), by type, 2016-21
                                                                                                                                                            • Figure 51: Capital expenditure by Northern Powergrid (Yorkshire), by type, 2011-15
                                                                                                                                                            • Figure 52: Capital expenditure planned by Northern Powergrid (Yorkshire), by type, 2016-21
                                                                                                                                                            • Figure 53: Activity costs by SP Energy Networks, 2011-15 and 2016-23
                                                                                                                                                            • Figure 54: Comparison of average annual activity costs by SP Energy Networks, 2011-15 and 2016-23
                                                                                                                                                            • Figure 55: Asset replacement expenditure by SP Energy Networks, by asset type, 2016-23
                                                                                                                                                            • Figure 56: Capital expenditure planned by SP Distribution, by type, 2011-15 and 2016-23
                                                                                                                                                            • Figure 57: Capital expenditure planned by SP Manweb, by type, 2011-15 and 2016-23
                                                                                                                                                            • Figure 58: Activity costs by Electricity North West, by type, 2011-15 and 2016-23
                                                                                                                                                            • Figure 59: Comparison of average annual activity costs by Electricity North West, 2011-15 and 2016-23
                                                                                                                                                            • Figure 60: Asset investment by Electricity North West, by type, 2011-15 and 2016-23
                                                                                                                                                            • Figure 61: Planned expenditure by Electricity North West, by type, 2014-21
                                                                                                                                                            • Figure 62: Core activity costs by Scottish and Southern Energy Power Distribution, by type, 2011-15 and 2016-23
                                                                                                                                                            • Figure 63: Comparison of average annual activity costs by Southern Energy Power Distribution, 2011-15 and 2016-23
                                                                                                                                                            • Figure 64: Asset Investment by Scottish and Southern Energy Power distribution, by type, 2011-15 and 2016-23
                                                                                                                                                            • Figure 65: Capital expenditure planned by Scottish Hydro Energy Power Distribution, by type, 2016-23
                                                                                                                                                            • Figure 66: Capital expenditure planned by Southern Energy Power Distribution, by type, 2016-23
                                                                                                                                                          • Northern Ireland Electricity
                                                                                                                                                            • Figure 67: Capital expenditure by NIE Transmission and Distribution, 2010/11-2014/15
                                                                                                                                                            • Figure 68: Capital expenditure determination for NIE Transmission and Distribution, 2012/13-2016/17
                                                                                                                                                        • Company Profiles Introduction

                                                                                                                                                          • Key points
                                                                                                                                                          • Western Power Distribution

                                                                                                                                                              • Western Power Distribution (East Midlands)
                                                                                                                                                                • Figure 69: Financial analysis of Western Power Distribution (East Midlands), 2010-15
                                                                                                                                                              • Western Power Distribution (West Midlands)
                                                                                                                                                                • Figure 70: Financial analysis of Western Power Distribution (West Midlands), 2010-15
                                                                                                                                                              • Western Power Distribution (South West)
                                                                                                                                                                • Figure 71: Financial analysis of Western Power Distribution (South West) 2011-15
                                                                                                                                                              • Western Power Distribution (South Wales)
                                                                                                                                                                • Figure 72: Financial analysis of Western Power Distribution (South Wales) 2011-15
                                                                                                                                                            • UK Power Networks

                                                                                                                                                                • UK Power Networks: Eastern Power Networks
                                                                                                                                                                  • Figure 73: Financial analysis of Eastern Power Networks, 2010-14
                                                                                                                                                                • UK Power Networks: London Power Networks
                                                                                                                                                                  • Figure 74: Financial analysis of London Power Networks, 2010-14
                                                                                                                                                                • UK Power Networks: South Eastern Power Networks
                                                                                                                                                                  • Figure 75: Financial analysis of South Eastern Power Networks, 2010-14
                                                                                                                                                              • Northern Powergrid

                                                                                                                                                                  • Northern Powergrid (Northeast)
                                                                                                                                                                    • Figure 76: Financial analysis of Northern Powergrid (Northeast), 2010-14
                                                                                                                                                                  • Northern Powergrid (Yorkshire)
                                                                                                                                                                    • Figure 77: Financial analysis of Northern Powergrid (Yorkshire), 2010-14
                                                                                                                                                                • SP Distribution

                                                                                                                                                                    • SP Manweb
                                                                                                                                                                      • Figure 78: Financial analysis of SP Manweb, 2010-14
                                                                                                                                                                    • SP Distribution (South & Central Scotland)
                                                                                                                                                                      • Figure 79: Financial analysis of SP Distribution, 2010-14
                                                                                                                                                                  • SSE

                                                                                                                                                                      • Company strategy and outlook
                                                                                                                                                                        • Figure 80: Financial analysis of SSE, 2011-15
                                                                                                                                                                        • Figure 81: Turnover analysis of SSE, by business segment, 2014-15
                                                                                                                                                                      • Southern Electric Power Distribution
                                                                                                                                                                        • Figure 82: Financial analysis of Southern Electric Power Distribution, 2011-15
                                                                                                                                                                      • Scottish Hydro Electric Power Distribution
                                                                                                                                                                        • Figure 83: Financial analysis of Scottish Hydro Electric Power Distribution, 2011-15
                                                                                                                                                                    • Electricity North West

                                                                                                                                                                          • Figure 84: Financial analysis of Electricity North West, 2011-15
                                                                                                                                                                      • Northern Ireland Electricity

                                                                                                                                                                            • Figure 85: Financial analysis of Northern Ireland Electricity, 2010-14
                                                                                                                                                                        • British Gas Trading

                                                                                                                                                                              • Figure 86: Financial analysis of British Gas Trading, 2010-14
                                                                                                                                                                          • EDF Energy

                                                                                                                                                                                • Figure 87: Financial analysis of EDF Energy, 2010-14
                                                                                                                                                                                • Figure 88: EDF Energy revenue segmental analysis, 2014
                                                                                                                                                                            • RWE Npower

                                                                                                                                                                                • Company strategy and outlook
                                                                                                                                                                                    • Figure 89: Financial analysis of Npower, 2010-14
                                                                                                                                                                                    • Figure 90: RWE – UK revenue segmental analysis, 2014
                                                                                                                                                                                • E.ON Energy

                                                                                                                                                                                    • Company strategy
                                                                                                                                                                                        • Figure 91: Financial analysis of E.ON Energy Solutions, 2010-14
                                                                                                                                                                                        • Figure 92: E.ON revenue segmental analysis, 2014
                                                                                                                                                                                    • ScottishPower Energy Retail

                                                                                                                                                                                        • Company strategy and outlook
                                                                                                                                                                                          • Figure 93: Financial analysis of ScottishPower Energy Retail, 2010-14
                                                                                                                                                                                          • Figure 94: ScottishPower revenue segmental analysis, 2014
                                                                                                                                                                                      • Ecotricity group

                                                                                                                                                                                          • Company strategy
                                                                                                                                                                                            • Figure 95: Financial analysis of Ecotricity Group, 2010-14
                                                                                                                                                                                        • First Utility

                                                                                                                                                                                            • Company strategy and outlook
                                                                                                                                                                                              • Figure 96: Financial analysis of First Utility, 2010-14
                                                                                                                                                                                          • Good Energy Group

                                                                                                                                                                                              • Company strategy
                                                                                                                                                                                                • Figure 97: Financial analysis of Good Energy Group, 2010-14
                                                                                                                                                                                                • Figure 98: Turnover analysis of Good Energy Group, by segment, 2012-14
                                                                                                                                                                                            • Further Sources and Contacts

                                                                                                                                                                                              • Trade associations and regulatory bodies
                                                                                                                                                                                                • Association of Electricity Producers
                                                                                                                                                                                                  • Energy Networks Association
                                                                                                                                                                                                    • Energy Industries Council
                                                                                                                                                                                                      • Energy Retail Association
                                                                                                                                                                                                        • Office of Gas and Electricity Markets (Ofgem)
                                                                                                                                                                                                          • Office of Gas and Electricity Markets – Scotland (Ofgem Scotland)
                                                                                                                                                                                                            • Office of Gas and Electricity Markets – Wales (Ofgem Wales)
                                                                                                                                                                                                              • Trade magazines
                                                                                                                                                                                                                • Modern Power Systems
                                                                                                                                                                                                                  • Modern Utility Management
                                                                                                                                                                                                                    • Utility Week
                                                                                                                                                                                                                      • Trade exhibitions
                                                                                                                                                                                                                        • Energy4PowerLive 2015
                                                                                                                                                                                                                          • Offshore Europe 2017
                                                                                                                                                                                                                            • edie2016

                                                                                                                                                                                                                            Companies Covered

                                                                                                                                                                                                                            To learn more about the companies covered in this report please contact us.

                                                                                                                                                                                                                            Electricity Industry - UK - December 2015

                                                                                                                                                                                                                            US $1,857.54 (Excl.Tax)