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Energy Industry - UK - August 2016

“Widespread smart meter deployment should create significant opportunities for energy suppliers, allowing them to offer more innovative and tailored tariffs and products. For example, the technology makes it possible for suppliers to offer ‘time-of-use tariffs’, charging a lower price for power at off-peak times, such as the weekend, and higher prices on high demand weekdays.
Smart meters therefore have the potential to increase competition between suppliers, enabling them to provide better service quality and new products and services. British Gas is the first supplier to launch a ‘time of use’ tariff in summer 2016, offering smart meter customers free power on one day each weekend.
Widespread smart meter roll-out could also attract new market entrants. For example, media companies, such as Sky and BT, could potentially include energy as part of their bundles once the service is digitised.”
Claudia Preedy - B2B Analyst

This report answers the following questions:

  • What is the potential impact of Brexit on the UK's renewable energy policy?
  • Have government subsidy cuts for some renewable technologies affected investor confidence?
  • How have smaller energy suppliers managed to gain market share from the 'big six' in recent years?
  • What opportunities do smart meters offer for energy suppliers?

The terms of reference for this report concern the UK energy market, specifically:

  • Electricity generation and demand
  • Gas supply and demand
  • Retail energy market

Electricity generation refers to companies producing electricity in power stations that operate under generation licences. The report covers the following:

  • coal generation
  • gas
  • nuclear
  • renewables (wind, solar, hydro, bioenergy, etc.)

The UK gas market can be separated into two sections: upstream (gas supply) and downstream (gas demand). The report covers gas supply (production, imports, exports) and the downstream activities of supply to the industrial, commercial, power generation and domestic sectors.

The retail energy market covers home energy providers in the UK, including:

  • Electricity suppliers
  • Gas suppliers
  • This report covers the residential energy supply market and excludes business customers.

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Table of contents

  1. Executive Summary

      • The market
        • Coal-fired power plants to be phased out by 2025
          • Share of gas-fired power generation falls to 30% by 2015
            • Life of nuclear power stations extended while government delays final decision for planned Hinkley Point C plant
              • A quarter of UK electricity generated from renewable sources in 2015
                • Figure 1: Analysis of electricity supplied in the UK, by type of fuel used in generation, 2015
              • Government push for shale gas exploration to reduce reliance on imports
                • Figure 2: UK Gas Supply, 2011-15
              • Energy supplier switching rates on the up
                • Cheap fixed tariffs have become focal point of competition...
                  • ...But majority of households remain on standard variable tariffs
                    • Figure 3: Breakdown of average domestic dual fuel bill, 2015
                  • Market factors
                    • Significant investment in UK energy infrastructure required to ensure security of supply and to meet renewables targets
                      • Electricity Market Reform (EMR) to ensure investment in UK’s low-carbon electricity infrastructure
                        • Large Combustion Plant Directive drives increased closure rate of coal-fired power stations
                          • Further reforms on the way for retail energy market following CMA market investigation
                            • The industry
                              • What we think
                              • Key Insights

                                  • What is the potential impact of Brexit on the UK’s renewable energy policy?
                                    • Have government subsidy cuts for some renewable technologies affected investor confidence?
                                      • How have smaller energy suppliers managed to gain market share from the ‘big six’ in recent years?
                                        • What opportunities do smart meters offer for energy suppliers?
                                        • Introduction

                                            • Definitions
                                              • Methodology
                                                • Abbreviations
                                                  • Market positioning
                                                    • The UK electricity and gas markets are privatised.
                                                    • UK Economy

                                                      • Overview
                                                        • Figure 4: UK GDP quarterly development, 2003-16
                                                        • Figure 5: UK GDP in economic downturns and recoveries since 1979
                                                      • Inflation
                                                        • Interest rates
                                                          • House prices
                                                            • Figure 6: UK House price changes, 2004-2016
                                                          • Consumer spending
                                                            • Manufacturing
                                                              • Figure 7: UK manufacturing, 2013-16
                                                            • Business investment
                                                              • Figure 8: UK GFCF 2003-15
                                                            • Imports
                                                              • Exports
                                                              • Market Factors

                                                                • Key points
                                                                  • Industry regulation
                                                                    • CMA energy market investigation
                                                                      • Legislative environment
                                                                        • Large Combustion Plant Directive (LCPD)
                                                                          • EU Renewables Directives
                                                                            • UK renewables policy
                                                                              • Renewables Obligation (RO)
                                                                                • Feed-In Tariffs (FITs)
                                                                                  • The Renewable Heat Incentive
                                                                                    • Electricity Market Reform
                                                                                      • Carbon Emission Reduction Target (CERT) and Community Energy Saving Programme (CESP)
                                                                                        • Energy Company Obligation (ECO)
                                                                                        • Electricity Demand and Generation

                                                                                          • Key points
                                                                                            • Overview
                                                                                              • UK facing power capacity crunch
                                                                                                • Electricity supply
                                                                                                  • Figure 9: Analysis of electricity supply in the UK, 2011-15
                                                                                                  • Figure 10: Analysis of electricity supply in the UK, 2011-15
                                                                                                  • Figure 11: Analysis of electricity supplied in the UK, by type of fuel used in generation, 2010-15
                                                                                                • Electricity consumption by end-use sector
                                                                                                  • Figure 12: Analysis of electricity usage, by type of industry, UK, 2010-15
                                                                                                  • Figure 13: Analysis of electricity usage, by the commercial sector, 2010-15
                                                                                                  • Figure 14: Analysis of electricity usage by the commercial sector, 2015
                                                                                                • Coal generation
                                                                                                  • Increased closure rate of coal-fired plants
                                                                                                    • Government plans to phase-out coal fired power stations by 2025
                                                                                                      • Conversion of coal-fired stations to biomass plants
                                                                                                          • Figure 15: Analysis of electricity supplied from coal-fired power stations in the UK, 2008-15
                                                                                                        • Gas/CCGT generation
                                                                                                          • Government to prioritise new gas-fired power stations
                                                                                                              • Figure 16: Analysis of electricity supplied from gas-fired power stations in the UK, 2008-15
                                                                                                              • Figure 17: Analysis of electricity supplied from gas-fired power stations in the UK, 2008-15
                                                                                                            • Carbon Capture and Storage Technology (CCS)
                                                                                                              • Nuclear power generation
                                                                                                                • Figure 18: UK nuclear sites planned closure dates, as of July 2016
                                                                                                              • Planned new nuclear power development marred by major delays
                                                                                                                  • Figure 19: Analysis of electricity supplied from nuclear power stations in the UK, 2008-15
                                                                                                                • Renewables generation
                                                                                                                  • Potential impact of Brexit on UK’s renewable energy policy
                                                                                                                    • Contracts for Difference to replace Renewable Obligation Certificates from March 2017
                                                                                                                      • Government subsidy cuts and lack of clear policy hits investor confidence in renewable sector
                                                                                                                        • Offshore wind
                                                                                                                          • Offshore wind costs falling fast
                                                                                                                            • Green Investment Bank drive to boost investment in offshore wind
                                                                                                                              • Solar power
                                                                                                                                • Conservative government further slashes solar subsidies, both for large-scale and small-scale developments
                                                                                                                                  • The government also announced the following measures for FITs:
                                                                                                                                    • Hydro electricity
                                                                                                                                      • Bioenergy
                                                                                                                                          • Figure 20: Bioenergy electricity generation capacity, by type of plant, 2011-15
                                                                                                                                          • Figure 21: Renewable electricity generation in the UK, 2010-15
                                                                                                                                          • Figure 22: Electricity generation from on- and offshore wind, 2011-15
                                                                                                                                          • Figure 23: Renewable energy projects in pipeline, by technology, as of June 2016
                                                                                                                                      • Gas Demand and Supply

                                                                                                                                        • Key points
                                                                                                                                          • Overview
                                                                                                                                              • Figure 24: Total gas supply, UK, 2011-15
                                                                                                                                            • Potential for shale gas extraction
                                                                                                                                              • Wholesale gas prices
                                                                                                                                                • Figure 25: Average wholesale gas prices, 2002-15
                                                                                                                                                • Figure 26: Average wholesale gas prices, 2003-15
                                                                                                                                              • Gas demand by end-user
                                                                                                                                                • Figure 27: Segmentation of industrial gas consumption, by end use industries, UK, 2011-15
                                                                                                                                                • Figure 28: Segmentation of gas consumption, by non-industrial sectors, UK, 2011-15
                                                                                                                                                • Figure 29: Segmentation of gas consumption, by non-industrial sectors, 2015
                                                                                                                                              • Power generation
                                                                                                                                                • Figure 30: Gas supplied for electricity generation, UK, 2011-15
                                                                                                                                                • Figure 31: Gas supplied for electricity generation, UK, 2011-15
                                                                                                                                              • Interruptible
                                                                                                                                                • Industrial
                                                                                                                                                  • Figure 32: Gas supplied to the industrial sector, UK, 2011-15
                                                                                                                                                  • Figure 33: Gas supplied to the industrial sector, UK, 2011-15
                                                                                                                                                • Commercial
                                                                                                                                                  • Figure 34: Gas supplied to the UK commercial sector, 2011-15
                                                                                                                                                  • Figure 35: Gas supplied to the commercial sector, UK, 2011-15
                                                                                                                                                • Domestic
                                                                                                                                                  • Figure 36: Analysis of the development of gas supplied to the UK domestic sector, 2011-15
                                                                                                                                                  • Figure 37: Gas supplied to the UK domestic sector, 2011-15
                                                                                                                                              • Retail Energy Market

                                                                                                                                                • Key points
                                                                                                                                                  • Market background
                                                                                                                                                      • Figure 38: Proportion of domestic electricity customers by supplier type, by region, 2000 and 2016
                                                                                                                                                      • Figure 39: Proportion of domestic gas customers of British Gas Trading and other suppliers, by region, 2016
                                                                                                                                                      • Figure 40: Number of supplier switches in the domestic gas and electricity markets and share of small suppliers, Great Britain, Q1 2010 - Q1 2016
                                                                                                                                                      • Figure 41: Number of supplier switches in the domestic gas and electricity markets, Great Britain, Q1 2010 - Q1 2016
                                                                                                                                                    • Regional demand
                                                                                                                                                      • Figure 42: Gas sales and customers by region, Great Britain, 2014
                                                                                                                                                      • Figure 43: Electricity sales and customers by region, Great Britain, 2014
                                                                                                                                                    • Market issues and recent developments
                                                                                                                                                      • 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 44: Breakdown of average large supplier dual fuel household bill, 2015
                                                                                                                                                              • Figure 45: Breakdown of average domestic electricity bill, 2015
                                                                                                                                                              • Figure 46: 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 47: Domestic gas supply market shares in Great Britain, by company 2011-15
                                                                                                                                                                    • Figure 48: Domestic electricity supply market shares in Great Britain, by company 2011-15
                                                                                                                                                                  • 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
                                                                                                                                                                          • The Consumer – Current Supplier and Recent Switches

                                                                                                                                                                            • Key points
                                                                                                                                                                              • British Gas remains top supplier of gas and electricity
                                                                                                                                                                                • Figure 49: Current gas and electricity supplier(s), May 2016
                                                                                                                                                                              • Just over a quarter of people have changed energy supplier in past 12 months
                                                                                                                                                                                • Figure 50: Change of gas/electricity supplier in the last 12 months, May 2016
                                                                                                                                                                            • The Consumer – Reasons for Switching

                                                                                                                                                                              • Key points
                                                                                                                                                                                • Nearly one in five switched supplier in the past 12 months because their tariff had expired
                                                                                                                                                                                  • Figure 51: Reasons for changing gas/electricity supplier in the last 12 months, May 2016
                                                                                                                                                                              • The Consumer – Attitudes toward Gas and Electricity Suppliers

                                                                                                                                                                                • Key points
                                                                                                                                                                                  • Most people (71%) agree that it is easier to manage energy bills online than other methods
                                                                                                                                                                                    • Figure 52: Attitudes towards gas and electricity suppliers, May 2016
                                                                                                                                                                                  • First Utility receives highest customer satisfaction rating of top seven suppliers
                                                                                                                                                                                    • Figure 53: I am satisfied with the customer service I receive from my current supplier, by current supplier, May 2016
                                                                                                                                                                                • Company Profiles

                                                                                                                                                                                  • Key points
                                                                                                                                                                                    • Company profiles
                                                                                                                                                                                    • Centrica/British Gas Trading

                                                                                                                                                                                        • British Gas
                                                                                                                                                                                          • Direct Energy
                                                                                                                                                                                            • Centrica Energy
                                                                                                                                                                                              • Centrica Storage
                                                                                                                                                                                                • Company strategy and outlook
                                                                                                                                                                                                    • Figure 54: Financial analysis of Centrica, 2011-15
                                                                                                                                                                                                    • Figure 55: Centrica revenue segmental analysis, 2015
                                                                                                                                                                                                  • Focus on innovative Connected Homes Products
                                                                                                                                                                                                    • Preliminary results for 2015 show improved operating profit in residential energy supply business
                                                                                                                                                                                                      • Figure 56: Financial analysis of British Gas Trading, 2010-14
                                                                                                                                                                                                  • EDF Energy

                                                                                                                                                                                                        • Figure 57: Financial analysis of EDF Energy, 2011-15
                                                                                                                                                                                                        • Figure 58: EDF Energy revenue segmental analysis, 2015
                                                                                                                                                                                                    • RWE Npower

                                                                                                                                                                                                        • Company strategy and outlook
                                                                                                                                                                                                            • Figure 59: Financial analysis of Npower, 2010-14
                                                                                                                                                                                                            • Figure 60: RWE - UK revenue segmental analysis, 2015
                                                                                                                                                                                                        • E.ON Energy

                                                                                                                                                                                                            • Company strategy
                                                                                                                                                                                                              • Figure 61: Financial analysis of E.ON Energy Solutions, 2011-15
                                                                                                                                                                                                              • Figure 62: E.ON revenue segmental analysis, 2015
                                                                                                                                                                                                          • ScottishPower Energy Retail

                                                                                                                                                                                                              • Company strategy and outlook
                                                                                                                                                                                                                  • Figure 63: Financial analysis of ScottishPower Energy Retail, 2011-15
                                                                                                                                                                                                                  • Figure 64: ScottishPower revenue segmental analysis, 2015
                                                                                                                                                                                                              • SSE

                                                                                                                                                                                                                  • Company strategy and outlook
                                                                                                                                                                                                                    • Figure 65: Financial analysis of SSE, 2011-15
                                                                                                                                                                                                                    • Figure 66: SSE revenue segmental analysis, 2015
                                                                                                                                                                                                                • Ecotricity Group

                                                                                                                                                                                                                    • Company strategy
                                                                                                                                                                                                                      • Figure 67: Financial analysis of Ecotricity Group, 2011-15
                                                                                                                                                                                                                  • First Utility

                                                                                                                                                                                                                      • Company strategy and outlook
                                                                                                                                                                                                                        • Figure 68: Financial analysis of First Utility, 2010-14
                                                                                                                                                                                                                    • Good Energy Group

                                                                                                                                                                                                                        • Company strategy
                                                                                                                                                                                                                          • Figure 69: Financial analysis of Good Energy Group, 2011-15
                                                                                                                                                                                                                          • Figure 70: Turnover analysis of Good Energy Group, by segment, 2012-15
                                                                                                                                                                                                                      • Future Energy Demand

                                                                                                                                                                                                                        • Key points
                                                                                                                                                                                                                          • Electricity generation forecast
                                                                                                                                                                                                                            • National Grid’s Future Energy Scenarios
                                                                                                                                                                                                                                • Figure 71: Annual power demand in Great Britain, 2016-40
                                                                                                                                                                                                                                • Figure 72: Annual power demand in Great Britain, 2016-40
                                                                                                                                                                                                                              • Shift from transmission to distribution connections
                                                                                                                                                                                                                                • Future potential energy mix
                                                                                                                                                                                                                                    • Figure 73: Forecast power generation installed capacity under “slow progression” scenario, by source, 2016-40
                                                                                                                                                                                                                                    • Figure 74: Forecast power generation installed capacity under “gone green” scenario, by source, 2016-40
                                                                                                                                                                                                                                    • Figure 75: Forecast power generation installed capacity under “no progression” scenario, by source, 2016-40
                                                                                                                                                                                                                                    • Figure 76: Forecast power generation installed capacity under “consumer power” scenario, by source, 2016-40
                                                                                                                                                                                                                                    • Figure 77: Future potential energy mix in 2035, by scenario
                                                                                                                                                                                                                                  • Interconnectivity between European countries to increase
                                                                                                                                                                                                                                    • Figure 78: Existing and planned interconnectors, as of June 2016
                                                                                                                                                                                                                                  • Gas demand forecast
                                                                                                                                                                                                                                    • Figure 79: Forecast UK gas demand, 2016-40
                                                                                                                                                                                                                                • Further Sources and Contacts

                                                                                                                                                                                                                                  • Trade associations and regulatory bodies
                                                                                                                                                                                                                                    • Trade magazines

                                                                                                                                                                                                                                    Companies Covered

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

                                                                                                                                                                                                                                    Energy Industry - UK - August 2016

                                                                                                                                                                                                                                    £1,495.00 (Excl.Tax)