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UK Energy Industry market report

"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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What's included

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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 increases from 29% in 2015 to 41% in 2016
            • Life of a number of existing nuclear power stations extended
              • New Hinkley Point C nuclear power plant beset by delays
                • Nearly a quarter of UK electricity generated from renewable sources in 2016
                  • Figure 1: Analysis of electricity supplied in the UK, by type of fuel used in generation, 2016
                • Government push for shale gas exploration to reduce reliance on imports
                  • Figure 2: UK Gas Supply, 2012-16
                • Energy supplier switching up by nearly 30% in 2016
                  • Cheap fixed tariffs have become focal point of competition...
                    • Suppliers looking to differentiate themselves in an ever more competitive market
                      • Figure 3: Breakdown of average domestic dual fuel bill, 2016
                    • Market factors
                      • Significant investment in UK energy infrastructure required to ensure security of supply and 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?
                                      • Are energy suppliers branching out into other services or utilities?
                                        • First Utility plans to add more diversified services to its portfolio.
                                          • What opportunities do smart meters offer for energy suppliers?
                                          • Introduction

                                              • Definitions
                                                • Methodology
                                                  • Abbreviations
                                                    • Market positioning
                                                    • UK Economy

                                                      • Overview
                                                        • Figure 4: Forecast GDP development 2017-21
                                                        • Figure 5: UK GDP quarterly development, 2004-17
                                                        • Figure 6: UK GDP in economic downturns and recoveries since 1979
                                                      • Inflation
                                                        • Interest rates
                                                          • House prices
                                                            • Figure 7: UK house price changes, 2006-2017
                                                          • Consumer spending
                                                            • Manufacturing
                                                              • Figure 8: UK manufacturing, 2014-17
                                                            • Business investment
                                                              • Figure 9: UK GFCF 2003-17
                                                            • 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 & Generation

                                                                                          • Key points
                                                                                            • Overview
                                                                                              • Despite Brexit uncertainty, interconnector capacity between Britain and Europe is set to increase
                                                                                                  • Figure 10: Existing and planned interconnectors, as of June 2017
                                                                                                • Electricity supply
                                                                                                  • Figure 11: Analysis of electricity supply in the UK, 2012-16
                                                                                                  • Figure 12: Analysis of electricity supply in the UK, 2012-16
                                                                                                  • Figure 13: Analysis of electricity supplied in the UK, by type of fuel used in generation, 2011-16
                                                                                                • Electricity consumption by end-use sector
                                                                                                  • Figure 14: Analysis of electricity usage, by type of industry, UK, 2010-15
                                                                                                  • Figure 15: Analysis of electricity usage, by the commercial sector, 2010-15
                                                                                                  • Figure 16: Analysis of electricity usage by the commercial sector, 2015
                                                                                                • Coal generation
                                                                                                  • Remaining coal fired power stations likely to close by 2025
                                                                                                    • Conversion of coal-fired stations to biomass plants
                                                                                                        • Figure 17: Analysis of electricity supplied from coal-fired power stations in the UK, 2009-16
                                                                                                      • Gas/CCGT generation
                                                                                                        • Government to prioritise new gas-fired power stations
                                                                                                            • Figure 18: Analysis of electricity supplied from gas-fired power stations in the UK, 2009-16
                                                                                                            • Figure 19: Analysis of electricity supplied from gas-fired power stations in the UK, 2009-16
                                                                                                          • Nuclear power generation
                                                                                                            • Figure 20: UK nuclear sites planned closure dates, as of June 2017
                                                                                                          • Planned new nuclear power development marred by major delays
                                                                                                              • Figure 21: Analysis of electricity supplied from nuclear power stations in the UK, 2009-16
                                                                                                            • Renewables generation
                                                                                                              • Potential impact of Brexit on UK’s renewable energy policy
                                                                                                                • Offshore wind
                                                                                                                  • Offshore wind costs falling fast
                                                                                                                    • Green Investment Bank drive to boost investment in offshore wind
                                                                                                                      • Solar power
                                                                                                                        • Large-scale and small-scale solar PV installations see subsidies slashed
                                                                                                                          • Hydro electricity
                                                                                                                            • Bioenergy
                                                                                                                                • Figure 22: Bioenergy electricity generation capacity, by type of plant, 2012-16
                                                                                                                                • Figure 23: Renewable electricity generation in the UK, 2011-16
                                                                                                                                • Figure 24: Electricity generation from on- and offshore wind, 2012-16
                                                                                                                                • Figure 25: Renewable energy projects in pipeline, by technology, as of October 2016
                                                                                                                            • Gas Demand & Supply

                                                                                                                              • Key points
                                                                                                                                • Overview
                                                                                                                                    • Figure 26: Total gas supply, UK, 2012-16
                                                                                                                                  • Risks to UK gas supply
                                                                                                                                    • Potential for shale gas extraction
                                                                                                                                      • Wholesale gas prices
                                                                                                                                        • Figure 27: Average wholesale gas prices, 2002-16
                                                                                                                                        • Figure 28: Average wholesale gas prices, 2002-16
                                                                                                                                      • Gas demand by end user
                                                                                                                                        • Figure 29: Segmentation of industrial gas consumption, by end use industries, UK, 2011-15
                                                                                                                                        • Figure 30: Segmentation of gas consumption, by non-industrial sectors, UK, 2011-15
                                                                                                                                        • Figure 31: Segmentation of gas consumption, by non-industrial sectors, 2015
                                                                                                                                      • Power Generation
                                                                                                                                        • Figure 32: Gas supplied for electricity generation, UK, 2012-16
                                                                                                                                        • Figure 33: Gas supplied for electricity generation, UK, 2012-16
                                                                                                                                      • Interruptible
                                                                                                                                        • Industrial
                                                                                                                                          • Figure 34: Gas supplied to the industrial sector, UK, 2012-16
                                                                                                                                          • Figure 35: Gas supplied to the industrial sector, UK, 2012-16
                                                                                                                                        • Commercial
                                                                                                                                          • Figure 36: Gas supplied to the UK commercial sector, 2011-15
                                                                                                                                          • Figure 37: Gas supplied to the commercial sector, UK, 2011-15
                                                                                                                                        • Domestic
                                                                                                                                          • Figure 38: Analysis of the development of gas supplied to the UK domestic sector, 2012-16
                                                                                                                                          • Figure 39: Gas supplied to the UK domestic sector, 2012-16
                                                                                                                                      • Retail Energy Market

                                                                                                                                        • Key points
                                                                                                                                          • Market background
                                                                                                                                              • Figure 40: Proportion of domestic electricity customers by supplier type, by region, 2000 and 2017
                                                                                                                                              • Figure 41: Proportion of domestic gas customers of British Gas Trading and other suppliers, by region, 2017
                                                                                                                                            • Regional demand
                                                                                                                                              • Figure 42: Gas sales and customers by region, Great Britain, 2015
                                                                                                                                              • Figure 43: Electricity sales and customers by region, Great Britain, 2015
                                                                                                                                            • Market issues and recent developments
                                                                                                                                              • Further market reforms on the way following CMA Energy Market Investigation
                                                                                                                                                • Energy market likely to face further government intervention
                                                                                                                                                  • Breakdown of average gas and electricity bill
                                                                                                                                                    • Figure 44: Breakdown of average large supplier dual fuel household bill, 2016
                                                                                                                                                    • Figure 45: Breakdown of average domestic electricity bill, 2016
                                                                                                                                                    • Figure 46: Breakdown of average domestic gas bill, 2016
                                                                                                                                                  • Price competition intensified between 2014 and 2016, reflecting falling wholesale costs and more industry players
                                                                                                                                                    • ...but many suppliers hike prices in early 2017, citing rising wholesale costs and the cost of delivering government policies
                                                                                                                                                      • Competition largely focused on cheap fixed tariffs...
                                                                                                                                                        • ... but most households remain on more expensive standard variable tariff
                                                                                                                                                          • Switching trends
                                                                                                                                                            • Figure 47: Number of supplier switches in the domestic gas and electricity markets and share of small suppliers, Great Britain, Q1 2011 - Q1 2017
                                                                                                                                                            • Figure 48: Number of supplier switches in the domestic gas and electricity markets, Great Britain, Q1 2011 - Q1 2017
                                                                                                                                                          • Independent suppliers are rapidly gaining market share
                                                                                                                                                              • Figure 49: Domestic gas supply market shares in Great Britain, by company 2012-16
                                                                                                                                                              • Figure 50: Domestic electricity supply market shares in Great Britain, by company 2012-16
                                                                                                                                                            • Lower prices and differentiation strategies drive growth of independent suppliers
                                                                                                                                                              • Energy suppliers are branching out into multi-utility market
                                                                                                                                                                • Customer service is key driver of customer loyalty
                                                                                                                                                                  • Smart Meter Roll-out programme
                                                                                                                                                                    • First-generation (SMETS1) smart meters will need to be upgraded or replaced, as they can revert to being ‘dumb’ if consumers switch supplier
                                                                                                                                                                      • Potential benefits and opportunities offered by smart meters
                                                                                                                                                                        • 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 51: Current gas and electricity supplier(s), May 2017
                                                                                                                                                                            • Over a quarter of people have changed energy supplier in past 12 months
                                                                                                                                                                              • Figure 52: Change of gas/electricity supplier in the last 12 months, May 2017
                                                                                                                                                                          • The Consumer - Reasons For Switching

                                                                                                                                                                            • Key points
                                                                                                                                                                              • 22% switched supplier in the past 12 months because their tariff expired
                                                                                                                                                                                • Figure 53: Reasons for changing gas/electricity supplier in the last 12 months, May 2017
                                                                                                                                                                            • The Consumer – Attitudes towards Gas and Electricity Suppliers

                                                                                                                                                                              • Key points
                                                                                                                                                                                • Most people (84%) satisfied with the customer service received from their current supplier
                                                                                                                                                                                  • Figure 54: Attitudes towards gas and electricity suppliers, May 2017
                                                                                                                                                                                  • Figure 55: Agreement with statements relating to electricity and gas suppliers, May 2017
                                                                                                                                                                                • First Utility receives highest customer satisfaction rating of top seven suppliers
                                                                                                                                                                                  • Figure 56: I am satisfied with the customer service I receive from my current supplier, by current gas and/or electricity supplier, May 2017
                                                                                                                                                                              • Company Profiles

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

                                                                                                                                                                                      • Recent acquisitions and disposals
                                                                                                                                                                                        • Company strategy
                                                                                                                                                                                            • Figure 57: Financial analysis of Centrica, 2012-16
                                                                                                                                                                                            • Figure 58: Centrica revenue segmental analysis, 2016
                                                                                                                                                                                          • Following a price freeze in the first half of 2017, British Gas hikes electricity prices by 12.5% from September 2017
                                                                                                                                                                                            • Focus on innovative Connected Homes Products
                                                                                                                                                                                              • Company review and outlook
                                                                                                                                                                                                  • Figure 59: Financial analysis of British Gas Trading, 2012-16
                                                                                                                                                                                              • EDF Energy

                                                                                                                                                                                                  • Planed new UK power stations
                                                                                                                                                                                                    • Smart metering programme
                                                                                                                                                                                                      • Recent price cuts and hikes
                                                                                                                                                                                                        • Intense competition sees EDF Energy lose more customers in 2016
                                                                                                                                                                                                          • Figure 60: Financial analysis of EDF Energy, 2012-16
                                                                                                                                                                                                          • Figure 61: EDF Energy revenue segmental analysis, 2016
                                                                                                                                                                                                      • RWE NPower

                                                                                                                                                                                                          • Price cuts announced in early 2016...
                                                                                                                                                                                                            • ... followed by price hike in March 2017
                                                                                                                                                                                                              • Company strategy and outlook
                                                                                                                                                                                                                  • Figure 62: Financial analysis of Npower, 2011-15
                                                                                                                                                                                                                  • Figure 63: RWE - UK revenue segmental analysis, 2016
                                                                                                                                                                                                              • E.ON Energy

                                                                                                                                                                                                                  • E.ON cuts gas price in early 2016....
                                                                                                                                                                                                                    • ... But announces a price hike in March 2017, the first in more than three years
                                                                                                                                                                                                                      • Company strategy
                                                                                                                                                                                                                        • Figure 64: Financial analysis of E.ON Energy Solutions, 2012-16
                                                                                                                                                                                                                        • Figure 65: E.ON revenue segmental analysis, 2016
                                                                                                                                                                                                                    • ScottishPower Energy Retail

                                                                                                                                                                                                                        • Gas prices cut in early 2016, but dual tariff raised in early 2017
                                                                                                                                                                                                                          • Company performance & strategy
                                                                                                                                                                                                                              • Figure 66: Financial analysis of ScottishPower Energy Retail, 2012-16
                                                                                                                                                                                                                              • Figure 67: ScottishPower revenue segmental analysis, 2016
                                                                                                                                                                                                                          • SSE

                                                                                                                                                                                                                              • Recent reductions in gas prices for SSE customers
                                                                                                                                                                                                                                • But SSE hikes electricity prices from April 2017
                                                                                                                                                                                                                                  • Company strategy and outlook
                                                                                                                                                                                                                                    • Figure 68: Financial analysis of SSE, 2012-16
                                                                                                                                                                                                                                    • Figure 69: SSE revenue segmental analysis, 2016
                                                                                                                                                                                                                                • Ecotricity Group

                                                                                                                                                                                                                                    • Ecotricity raises energy prices towards the end of 2016
                                                                                                                                                                                                                                      • Company strategy
                                                                                                                                                                                                                                        • Figure 70: Financial analysis of Ecotricity Group, 2012-16
                                                                                                                                                                                                                                    • First Utility

                                                                                                                                                                                                                                        • First Utility diversifies in a bid to become multi-utility brand
                                                                                                                                                                                                                                          • Figure 71: Financial analysis of First Utility, 2011-15
                                                                                                                                                                                                                                      • Good Energy Group

                                                                                                                                                                                                                                          • Company strategy
                                                                                                                                                                                                                                              • Figure 72: Financial analysis of Good Energy Group, 2012-16
                                                                                                                                                                                                                                              • Figure 73: Turnover analysis of Good Energy Group, by segment, 2012-16
                                                                                                                                                                                                                                          • Future Energy Demand

                                                                                                                                                                                                                                            • Key points
                                                                                                                                                                                                                                              • Electricity generation forecast
                                                                                                                                                                                                                                                • National Grid’s Future Energy Scenarios
                                                                                                                                                                                                                                                    • Figure 74: Annual power demand in Great Britain, 2017-42
                                                                                                                                                                                                                                                    • Figure 75: Annual power demand in Great Britain, 2017-42
                                                                                                                                                                                                                                                  • Electric cars could fuel huge demand for power over the next 30 years
                                                                                                                                                                                                                                                    • Electricity storage to increase, but at a more moderate levels than National Grid previously predicted
                                                                                                                                                                                                                                                      • Government unveils £246 million battery investment strategy in July 2017
                                                                                                                                                                                                                                                        • Future potential energy mix
                                                                                                                                                                                                                                                          • Renewables
                                                                                                                                                                                                                                                            • Nuclear
                                                                                                                                                                                                                                                              • Thermal plants
                                                                                                                                                                                                                                                                • Interconnectors
                                                                                                                                                                                                                                                                  • Figure 76: Forecast power generation installed capacity under “slow progression” scenario, by source, 2017-42
                                                                                                                                                                                                                                                                  • Figure 77: Forecast power generation installed capacity under “two degrees” scenario, by source, 2017-42
                                                                                                                                                                                                                                                                  • Figure 78: Forecast power generation installed capacity under “steady state” scenario, by source, 2017-42
                                                                                                                                                                                                                                                                  • Figure 79: Forecast power generation installed capacity under “consumer power” scenario, by source, 2017-42
                                                                                                                                                                                                                                                                  • Figure 80: Future potential energy mix in 2037, by scenario
                                                                                                                                                                                                                                                                • Gas demand forecast
                                                                                                                                                                                                                                                                    • Figure 81: Forecast UK gas demand, 2017-42
                                                                                                                                                                                                                                                                • Further Sources & Contacts

                                                                                                                                                                                                                                                                  • Trade associations & 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)
                                                                                                                                                                                                                                                                                  • Renewable Energy Association
                                                                                                                                                                                                                                                                                    • Solar Trade Association
                                                                                                                                                                                                                                                                                      • Trade magazines
                                                                                                                                                                                                                                                                                        • Modern Power Systems
                                                                                                                                                                                                                                                                                          • Modern Utility Management
                                                                                                                                                                                                                                                                                            • Utility Week
                                                                                                                                                                                                                                                                                              • Energy Now
                                                                                                                                                                                                                                                                                                • Real Power
                                                                                                                                                                                                                                                                                                  • Renewable Energy Focus
                                                                                                                                                                                                                                                                                                    • Renewable Energy Installer
                                                                                                                                                                                                                                                                                                      • Resource
                                                                                                                                                                                                                                                                                                        • Solar Business Focus
                                                                                                                                                                                                                                                                                                          • Solar UK
                                                                                                                                                                                                                                                                                                            • Solar International
                                                                                                                                                                                                                                                                                                              • Wind Energy Network
                                                                                                                                                                                                                                                                                                                • Wind Power Monthly
                                                                                                                                                                                                                                                                                                                  • Trade Exhibitions
                                                                                                                                                                                                                                                                                                                    • Energy4PowerLive 2017
                                                                                                                                                                                                                                                                                                                      • Offshore Europe 2017
                                                                                                                                                                                                                                                                                                                        • RWM 2017
                                                                                                                                                                                                                                                                                                                          • edie live 2017

                                                                                                                                                                                                                                                                                                                          Companies Covered

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