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Electricity Industry - UK - November 2016

“A key focus for DNOs is the development and roll-out of innovative smart grid technologies to support the growing clean energy capacity coming onto the grid. New challenges for operators of the UK’s regional electricity networks have already started to arise from shifts in the way electricity is produced to include more renewable electricity (mainly onshore wind and solar PV) directly connected at the regional network level, known as distributed generation (DG).

Indeed, the last five years have seen a surge in the volume of DG connections, which has put significant pressure on the distribution network and posed challenges for DNOs to provide timely connection services to DG customers. The anticipated greater use of electric vehicles and heat pumps, and an increase in microgeneration and other carbon-reducing measures, will also radically change consumption patterns and bring continued new demands on networks.”

Claudia Preedy - B2B Analyst

This report answers the following questions:

  • Will the UK's decision to leave the EU affect the country's renewable energy generation and decarbonisation targets?
  • What are the key drivers for network investment by electricity distribution network operators (DNOs) over the coming years?
  • What opportunities do smart meters offer for energy suppliers?
  • How does Ofgem intend to encourage competition for the installation of new connection assets?

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Table of contents

  1. Executive Summary

      • The market
        • Gross capital spending slows in 2015/16 - the first year of the new price control period RIIO-ED1
          • Figure 1: UK gross capital expenditure by the electricity distribution network operators, 2011/12-2015/16
        • Eastern Power Networks (EPN), WPF West Midlands and WPD East Midlands report highest level of capital expenditure
          • Figure 2: Total expenditure allowance for RIIO-ED1 in Great Britain, by company, 2015/16-2022/23
        • 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 make considerable inroads in the electricity supply market
            • But some smaller suppliers may struggle when wholesale prices rise
              • 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, 2015
                • Market factors
                  • DNOs subject to price controls set by industry regulator Ofgem
                    • Decarbonisation of UK economy increases loads placed on distribution network
                      • Rapid growth in distributed generation due to rise in renewables generation
                        • Companies
                          • Electricity Distribution Industry
                            • Introduction of Competition in Network Connections
                              • What we think
                              • Key Insights

                                  • Will the UK’s decision to leave the EU affect the country’s renewable energy generation and decarbonisation targets?
                                    • What are the key drivers for network investment by electricity distribution network operators (DNOs) over the coming years?
                                      • 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
                                                    • UK Economy

                                                      • Overview
                                                        • Figure 5: UK GDP quarterly development, 2003-16
                                                        • Figure 6: UK GDP in economic downturns and recoveries since 1979
                                                      • Inflation
                                                        • Interest rates
                                                          • House prices
                                                            • Figure 7: UK House price changes, 2004-2016
                                                          • Consumer spending
                                                            • Manufacturing
                                                              • Figure 8: UK manufacturing, 2014-16
                                                            • Business investment
                                                              • Figure 9: UK GFCF 2003-16
                                                            • Imports
                                                              • Exports
                                                              • Market Factors

                                                                  • Price controls
                                                                    • UK committed to reduce carbon emissions by 80% below 1990 levels by 2050
                                                                      • Carbon budgets
                                                                        • Brexit vote raises uncertainties over UK carbon reduction and renewables targets, though the government remains committed to tackling climate change
                                                                          • Climate Change Levy
                                                                            • Climate Change Agreements
                                                                              • Emissions Trading Scheme
                                                                                • Renewables Obligation (RO)
                                                                                  • Feed-in Tariffs (FITs)
                                                                                    • The Renewable Heat Incentive
                                                                                      • Combined heat and power
                                                                                        • Carbon Emission Reduction Target (CERT) and Community Energy Saving Programme (CESP)
                                                                                          • Energy Company Obligation (ECO)
                                                                                            • Electricity Retail Market - Reforms to promote increased competition
                                                                                              • CMA energy market investigation
                                                                                              • Distribution Industry Structure

                                                                                                • Key points
                                                                                                  • Industry overview
                                                                                                      • Figure 10: Ownership of the distribution network operators in the UK, as of November 2016
                                                                                                    • Regional electricity demand
                                                                                                      • Figure 11: Electricity sales and customers by region, Great Britain, 2014
                                                                                                      • Figure 12: Regional proportional importance of electricity consumed in Great Britain, 2014
                                                                                                    • Electricity consumption by end-use sector
                                                                                                      • Figure 13: Analysis of electricity usage, by type of industry, UK, 2010-15
                                                                                                      • Figure 14: Analysis of electricity usage, by the commercial sector, 2010-15
                                                                                                      • Figure 15: Analysis of electricity usage by the commercial sector, 2015
                                                                                                    • Scotland
                                                                                                      • Northern Ireland
                                                                                                      • Electricity Distribution Sector Overview

                                                                                                        • Key points
                                                                                                          • Overview
                                                                                                            • Figure 16: Distribution network operators in Great Britain, by region, 2016
                                                                                                          • Size of UK distribution networks
                                                                                                            • Figure 17: UK distribution networks, 2015/16
                                                                                                        • Electricity Distribution Market Trends

                                                                                                          • Key points
                                                                                                            • Introduction of competition in network connections
                                                                                                              • Trends in UK electricity supply
                                                                                                                • UK facing power capacity crunch
                                                                                                                    • Figure 18: Analysis of electricity supply in the UK, 2011-15
                                                                                                                    • Figure 19: Analysis of electricity supplied in the UK, by type of fuel used in generation, 2010-15
                                                                                                                    • Figure 20: Analysis of electricity supplied in the UK, by type of fuel used in generation, 2015
                                                                                                                  • Renewable energy generation
                                                                                                                    • Figure 21: Renewable electricity generation in the UK, 2010-15
                                                                                                                    • Figure 22: Renewable electricity generation in the UK, 2010-15
                                                                                                                  • Distribution price control review
                                                                                                                    • Smart Grid Development to Support Low Carbon Economy
                                                                                                                      • UK energy storage market set to take-off
                                                                                                                        • The Low Carbon Network Fund (LCN) and Electricity Network Innovation Competition (NIC)
                                                                                                                        • Electricity Supply Sector Overview

                                                                                                                          • Key points
                                                                                                                            • Market background
                                                                                                                                • Figure 23: Proportion of domestic electricity customers by supplier type, by region, 2000 and 2016
                                                                                                                                • Figure 24: Number of supplier switches in the domestic gas and electricity markets and share of small suppliers, Great Britain, Q1 2010 - Q2 2016
                                                                                                                                • Figure 25: Number of supplier switches in the domestic gas and electricity markets, Great Britain, January 2011 - July 2016
                                                                                                                            • Electricity Supply Market Issues

                                                                                                                              • Key points
                                                                                                                                • Ofgem implemented market reforms in 2014 to promote increased competition and supplier switching
                                                                                                                                  • Further market reforms on the way following CMA Energy Market Investigation
                                                                                                                                    • Cheaper tariffs available due to falling wholesale costs, cuts to green levies and increased competition
                                                                                                                                      • Breakdown of average gas and electricity bill
                                                                                                                                        • Figure 26: Breakdown of average large supplier dual fuel household bill, 2015
                                                                                                                                        • Figure 27: Breakdown of average domestic electricity bill, 2015
                                                                                                                                        • Figure 28: Breakdown of average domestic gas bill, 2015
                                                                                                                                      • Cheap fixed tariffs have become focal point of competition...
                                                                                                                                        • ... but most households remain on more expensive standard variable tariff
                                                                                                                                          • Independent suppliers are rapidly gaining market share
                                                                                                                                              • Figure 29: Domestic gas supply market shares in Great Britain, by company 2012-16
                                                                                                                                              • Figure 30: Domestic electricity supply market shares in Great Britain, by company 2012-16
                                                                                                                                            • Lower prices and differentiation strategies drive growth of independent suppliers
                                                                                                                                              • Future rise in wholesale prices could put smaller suppliers at risk
                                                                                                                                                • Poor customer service and complaints handling remains an industry-wide issue
                                                                                                                                                  • Smart Meter Roll-out programme
                                                                                                                                                    • Switching rates in the SME sector also set to increase
                                                                                                                                                    • Capital Expenditure

                                                                                                                                                      • Key points
                                                                                                                                                        • Capital expenditure
                                                                                                                                                            • Figure 31: UK gross capital expenditure by electricity distribution network operators, 2011/12-2015/15
                                                                                                                                                            • Figure 32: UK gross capital expenditure by the electricity distribution network operators, 2011/12-2015/16
                                                                                                                                                            • Figure 33: UK gross capital expenditure by the electricity distribution network operators, by company, 2011/12-2015/16
                                                                                                                                                          • DNO’s total spending in DPCR5 is lower than set by Ofgem
                                                                                                                                                            • Figure 34: Breakdown of total expenditure by DNOs during DPCR5, by area 2011-2015
                                                                                                                                                          • DPCR5 witnesses launch of Low Carbon Networks Fund
                                                                                                                                                            • Rapid increase in distributed generation connected to DNOs’ networks
                                                                                                                                                              • Figure 35: Distributed Generation connected to the distribution network during DPCR5, 2011-15
                                                                                                                                                              • Figure 36: Distributed Generation connected to the distribution network during DPCR5, 2011-15
                                                                                                                                                            • Forecast capital expenditure
                                                                                                                                                              • New price control framework based on Revenue = Incentives + Innovation + Outputs effective from April 2015
                                                                                                                                                                  • Figure 37: Total expenditure allowance for RIIO-ED1 in Great Britain, by company, 2015/16-2022/23
                                                                                                                                                                  • Figure 38: Total expenditure allowance for RIIO-ED1 in Great Britain, by company, 2015/16-2022/23
                                                                                                                                                                  • Figure 39: Forecast network investment of the electricity distribution network operators in Great Britain, by company, 2015/16-2022/23
                                                                                                                                                                • DNOs
                                                                                                                                                                  • Western Power Distribution
                                                                                                                                                                      • Figure 40: Core activity costs by Western Power Distribution by type, 2011-2015 and 2016-2023
                                                                                                                                                                      • Figure 41: Asset replacement expenditure by Western Power Distribution, by type and company, 2016-2023
                                                                                                                                                                      • Figure 42: Capital expenditure planned by Western Power Distribution for the West Midlands by type, 2016-2021
                                                                                                                                                                      • Figure 43: Capital expenditure planned by Western Power Distribution for the East Midlands by type, 2016-2021
                                                                                                                                                                      • Figure 44: Capital expenditure planned by Western Power Distribution for South Wales by type, 2016-2021
                                                                                                                                                                      • Figure 45: Capital expenditure planned by Western Power Distribution for the South West by type, 2016-2021
                                                                                                                                                                    • UK Power Networks
                                                                                                                                                                      • Figure 46: Activity costs by UK Power Networks, 2011-2015 and 2016-2023
                                                                                                                                                                      • Figure 47: Activity costs by UK Power Networks, 2011-2015 and 2016-2023
                                                                                                                                                                      • Figure 48: Asset investment by UK Power Networks by type, 2011-2015 and 2016-2023
                                                                                                                                                                      • Figure 49: Capital expenditure planned by London Power Networks by type, 2016-2021
                                                                                                                                                                      • Figure 50: Capital expenditure planned by Eastern Power Networks by type, 2016-2021
                                                                                                                                                                      • Figure 51: Capital expenditure planned by South Eastern Power Networks by type, 2016-2021
                                                                                                                                                                    • Northern Powergrid
                                                                                                                                                                        • Figure 52: Activity costs by Northern Powergrid by type, 2011-2015 and 2016-2023
                                                                                                                                                                        • Figure 53: Comparison of average annual activity costs by Northern Powergrid, 2011-2015 and 2016-2023
                                                                                                                                                                        • Figure 54: Network investment by Northern Powergrid by type, 2011-2015 and 2016-2023
                                                                                                                                                                        • Figure 55: Capital expenditure by Northern Powergrid (Northeast) by type, 2011-2015
                                                                                                                                                                        • Figure 56: Capital expenditure planned by Northern Powergrid (Northeast) by type, 2016-2021
                                                                                                                                                                        • Figure 57: Capital expenditure by Northern Powergrid (Yorkshire) by type, 2011-2015
                                                                                                                                                                        • Figure 58: Capital expenditure planned by Northern Powergrid (Yorkshire) by type, 2016-2021
                                                                                                                                                                      • SP Energy Networks
                                                                                                                                                                        • Figure 59: Activity costs by SP Energy Networks, 2011-2015 and 2016-2023
                                                                                                                                                                        • Figure 60: Comparison of average annual activity costs by SP Energy Networks, 2011-2015 and 2016-2023
                                                                                                                                                                        • Figure 61: Asset replacement expenditure by SP Energy Networks by asset type, 2016-2023
                                                                                                                                                                        • Figure 62: Capital expenditure planned by SP Distribution by type, 2011-2015 and 2016-2023
                                                                                                                                                                        • Figure 63: Capital expenditure planned by SP Manweb by type, 2011-2015 and 2016-2023
                                                                                                                                                                      • Electricity North West
                                                                                                                                                                        • Figure 64: Activity costs by Electricity North West by type, 2011-2015 and 2016-2023
                                                                                                                                                                        • Figure 65: Comparison of average annual activity costs by Electricity North West, 2011-2015 and 2016-2023
                                                                                                                                                                        • Figure 66: Asset investment by Electricity North West by type, 2011-2015 and 2016-2023
                                                                                                                                                                        • Figure 67: Planned expenditure by Electricity North West by type, 2014-2021
                                                                                                                                                                      • Scottish and Southern Energy Power Distribution
                                                                                                                                                                        • Figure 68: Core activity costs by Scottish and Southern Energy Power Distribution by type, 2011-2015 and 2016-2023
                                                                                                                                                                        • Figure 69: Comparison of average annual activity costs by Southern Energy Power Distribution , 2011-2015 and 2016-2023
                                                                                                                                                                        • Figure 70: Asset Investment by Scottish and Southern Energy Power distribution by type, 2011-2015 and 2016-2023
                                                                                                                                                                        • Figure 71: Capital expenditure planned by Scottish Hydro Energy Power Distribution by type, 2016-23
                                                                                                                                                                        • Figure 72: Capital expenditure planned by Southern Energy Power Distribution by type, 2016-23
                                                                                                                                                                      • Northern Ireland Electricity
                                                                                                                                                                        • Figure 73: Capital expenditure by NIE Transmission and Distribution, 2010/11-2014/15
                                                                                                                                                                        • Figure 74: 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 75: Financial analysis of Western Power Distribution (East Midlands), 2012-16
                                                                                                                                                                          • Western Power Distribution (West Midlands)
                                                                                                                                                                            • Figure 76: Financial analysis of Western Power Distribution (West Midlands), 2012-16
                                                                                                                                                                          • Western Power Distribution (South West)
                                                                                                                                                                            • Figure 77: Financial analysis of Western Power Distribution (South West) 2012-16
                                                                                                                                                                          • Western Power Distribution (South Wales)
                                                                                                                                                                            • Figure 78: Financial analysis of Western Power Distribution (South Wales) 2012-16
                                                                                                                                                                        • UK Power Networks

                                                                                                                                                                            • UK Power Networks: Eastern Power Networks
                                                                                                                                                                              • Figure 79: Financial analysis of Eastern Power Networks, 2011-16
                                                                                                                                                                            • UK Power Networks: London Power Networks
                                                                                                                                                                              • Figure 80: Financial analysis of London Power Networks, 2011-16
                                                                                                                                                                            • UK Power Networks: South Eastern Power Networks
                                                                                                                                                                              • Figure 81: Financial analysis of South Eastern Power Networks, 2010-14
                                                                                                                                                                          • Northern Powergrid

                                                                                                                                                                              • Northern Powergrid (Northeast)
                                                                                                                                                                                • Figure 82: Financial analysis of Northern Powergrid (Northeast), 2011-15
                                                                                                                                                                              • Northern Powergrid (Yorkshire)
                                                                                                                                                                                • Figure 83: Financial analysis of Northern Powergrid (Yorkshire), 2011-15
                                                                                                                                                                            • SP Distribution

                                                                                                                                                                                • SP Manweb
                                                                                                                                                                                  • Figure 84: Financial analysis of SP Manweb, 2011-15
                                                                                                                                                                                • SP Distribution (South & Central Scotland)
                                                                                                                                                                                  • Figure 85: Financial analysis of SP Distribution, 2011-15
                                                                                                                                                                              • SSE

                                                                                                                                                                                  • Recent reductions in energy prices for SSE customers
                                                                                                                                                                                    • Company strategy and outlook
                                                                                                                                                                                      • Figure 86: Financial analysis of SSE, 2012-16
                                                                                                                                                                                      • Figure 87: SSE revenue segmental analysis, 2016
                                                                                                                                                                                    • Southern Electric Power Distribution
                                                                                                                                                                                      • Figure 88: Financial analysis of Southern Electric Power Distribution, 2012-16
                                                                                                                                                                                    • Scottish Hydro Electric Power Distribution
                                                                                                                                                                                      • Figure 89: Financial analysis of Scottish Hydro Electric Power Distribution, 2012-16
                                                                                                                                                                                  • Electricity North West

                                                                                                                                                                                        • Figure 90: Financial analysis of Electricity North West, 2012-16
                                                                                                                                                                                    • Northern Ireland Electricity Networks

                                                                                                                                                                                          • Figure 91: Financial analysis of Northern Ireland Electricity Networks, 2011-15
                                                                                                                                                                                      • Centrica/British Gas Trading

                                                                                                                                                                                          • Company strategy and outlook
                                                                                                                                                                                              • Figure 92: Financial analysis of Centrica, 2011-15
                                                                                                                                                                                              • Figure 93: Centrica revenue segmental analysis, 2015
                                                                                                                                                                                            • Focus on innovative Connected Homes Products
                                                                                                                                                                                              • Company review and outlook
                                                                                                                                                                                                  • Figure 94: Financial analysis of British Gas Trading, 2010-14
                                                                                                                                                                                              • EDF Energy

                                                                                                                                                                                                    • Figure 95: Financial analysis of EDF Energy, 2011-15
                                                                                                                                                                                                    • Figure 96: EDF Energy revenue segmental analysis, 2015
                                                                                                                                                                                                • RWE Npower

                                                                                                                                                                                                    • Company strategy and outlook
                                                                                                                                                                                                        • Figure 97: Financial analysis of Npower, 2011-15
                                                                                                                                                                                                        • Figure 98: RWE - UK revenue segmental analysis, 201 5
                                                                                                                                                                                                    • E.ON Energy

                                                                                                                                                                                                        • Company strategy
                                                                                                                                                                                                          • Figure 99: Financial analysis of E.ON Energy Solutions, 2011-15
                                                                                                                                                                                                          • Figure 100: E.ON revenue segmental analysis, 2015
                                                                                                                                                                                                      • Scottishpower Energy Retail

                                                                                                                                                                                                          • Company strategy and outlook
                                                                                                                                                                                                              • Figure 101: Financial analysis of ScottishPower Energy Retail, 2011-15
                                                                                                                                                                                                              • Figure 102: ScottishPower revenue segmental analysis, 2015
                                                                                                                                                                                                          • Ecotricity Group

                                                                                                                                                                                                              • Company strategy
                                                                                                                                                                                                                • Figure 103: Financial analysis of Ecotricity Group, 2011-15
                                                                                                                                                                                                            • First Utility

                                                                                                                                                                                                                • Company strategy and outlook
                                                                                                                                                                                                                  • Figure 104: Financial analysis of First Utility, 2010-14
                                                                                                                                                                                                              • Good Energy Group

                                                                                                                                                                                                                  • Company strategy
                                                                                                                                                                                                                      • Figure 105: Financial analysis of Good Energy Group, 2011-15
                                                                                                                                                                                                                      • Figure 106: Turnover analysis of Good Energy Group, by segment, 2012-15
                                                                                                                                                                                                                  • 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 - November 2016

                                                                                                                                                                                                                                                  US $1,288.43 (Excl.Tax)