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Energy Industry - UK - August 2019

“Battery technology and other forms of electricity storage solve the problem of renewables’ intermittent supply, and the technology is widely expected to have a significant role in the UK’s future energy system, allowing for an increased role for renewables, more flexibility and greater decentralisation.
The energy storage sector is already growing fast and costs are falling, with the sector set to play a pivotal role in creating a clean electricity system. However, robust government support is needed to help make it work properly and bring down costs.”
– Claudia Preedy, B2B Analyst

This Report looks at the following areas:

  • UK clean energy investment hampered by lack of policy clarity
  • Electrification of transport creates new diversification opportunities for suppliers

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Table of contents

  1. Overview

    • What you need to know
      • Covered in this Report
      • Executive Summary

          • The market
            • Shift from coal-fired electricity generation to gas-fired and renewables
              • Figure 1: Proportional importance of fuel source in UK electricity generation, 2014 and 2018
            • A third of UK electricity came from renewable sources in 2018
              • UK clean energy investment hampered by lack of policy clarity
                • Record numbers switch energy supplier
                  • Figure 2: Number of supplier switches in the domestic gas and electricity markets, Great Britain, Q1 2013-Q1 2019
                • Companies and brands
                  • Over one in four energy customers now use small or medium suppliers
                    • Figure 3: Domestic electricity supply market shares in Great Britain, by company, 2014-18
                  • Proposed merger of Npower and SSE called off due to adverse market developments
                    • The consumer
                      • Four in 10 consumers plan to switch tariff and/or supplier
                        • Just under half of consumers regularly check price comparison sites for energy tariffs
                          • Figure 4: Customer engagement in energy market, May 2019
                        • One in three find the option to buy bundles of services from energy suppliers appealing
                          • Just under half find the option to buy renewable energy products from energy suppliers appealing
                            • What we think
                            • Issues and Insights

                              • UK clean energy investment hampered by lack of policy clarity
                                • The facts
                                  • The implications
                                    • Electrification of transport creates new diversification opportunities for suppliers
                                      • The facts
                                        • The implications
                                        • The Market – What You Need to Know

                                          • Shift from coal-fired electricity generation to gas-fired and renewables
                                            • A third of UK electricity came from renewable sources in 2018
                                              • UK aims to deliver 30GW of offshore wind capacity by 2030
                                                • Record numbers switch energy supplier
                                                  • Over one in four energy customers now use small or medium suppliers
                                                  • Electricity Demand and Generation

                                                    • Trends in electricity supply
                                                      • Total electricity supply
                                                        • Figure 5: Analysis of electricity supply in the UK, 2014-18
                                                        • Figure 6: Analysis of electricity supply in the UK, 2014-18
                                                      • Electricity generation by type of fuel
                                                          • Figure 7: Analysis of electricity generation the UK, by type of fuel used, 2014-18
                                                          • Figure 8: Proportional importance of fuel source in UK electricity generation, 2014 and 2018
                                                        • Coal generation
                                                          • Remaining coal-fired power stations set to close by 2025
                                                            • Conversion of coal-fired stations to biomass plants
                                                                • Figure 9: Analysis of electricity generated in coal-fired power stations in the UK, 2011-18
                                                              • Gas/CCGT generation
                                                                • Government scales back forecasts for new gas-fired power stations
                                                                  • 40% of UK electricity generation is sourced from gas-fired plants
                                                                    • Figure 10: Analysis of electricity generated in gas-fired power stations in the UK, 2011-18
                                                                    • Figure 11: Analysis of electricity supplied from gas-fired power stations in the UK, 2011-18
                                                                  • Nuclear power generation
                                                                    • Figure 12: UK nuclear sites’ planned closure dates, as of July 2019
                                                                  • Government’s nuclear new build plans in disarray following suspension of projects
                                                                    • Hinkley Point C only new nuclear plant under construction
                                                                      • Around 20% of electricity is sourced from nuclear power plant
                                                                        • Figure 13: Analysis of electricity generated in nuclear power stations in the UK, 2011-18
                                                                      • Renewables generation
                                                                        • The government remains committed to carbon emission reduction targets despite Brexit vote
                                                                          • UK clean energy investment hampered by lack of policy clarity
                                                                            • A third of UK’s electricity generation in 2018 came from renewable sources
                                                                              • Figure 14: Renewable electricity generation in the UK, 2014-18
                                                                              • Figure 15: Electricity generation from on- and offshore wind, 2014-18
                                                                            • Onshore wind
                                                                              • Offshore wind
                                                                                • Solar power
                                                                                  • Hydro electricity
                                                                                    • Bioenergy
                                                                                        • Figure 16: Bioenergy electricity generation capacity, by type of plant, 2014-18
                                                                                      • Renewable electricity capacity development pipeline
                                                                                        • Figure 17: Renewable energy projects in pipeline, by technology, as of March 2019
                                                                                    • Gas Demand and Supply

                                                                                      • UK’s increased dependence on gas imports
                                                                                          • Figure 18: Total UK gas supply, 2014-18
                                                                                          • Figure 19: Total UK gas supply, 2014-18
                                                                                        • Government push for shale gas exploration to reduce reliance on imports
                                                                                          • Wholesale gas prices
                                                                                              • Figure 20: Average wholesale gas prices, 2007-18
                                                                                          • Future Energy Mix and Demand

                                                                                            • Future energy demand under National Grid’s Future Energy Scenarios
                                                                                                • Figure 21: Annual power demand in Great Britain, 2018-50
                                                                                                • Figure 22: Annual power demand in Great Britain, 2018-50
                                                                                              • Future potential energy mix
                                                                                                  • Figure 23: Forecast power generation installed capacity under “Community Renewables” scenario, by source, 2018-50
                                                                                                  • Figure 24: Future potential energy mix in “Community Renewables” Scenario in 2040
                                                                                                  • Figure 25: Forecast power generation installed capacity under “Two Degrees” scenario, by source, 2018-50
                                                                                                  • Figure 26: Future potential energy mix in “Two Degrees” scenario in 2040
                                                                                                  • Figure 27: Forecast power generation installed capacity under “Steady Progression” scenario, by source, 2018-50
                                                                                                  • Figure 28: Future potential energy mix in “Steady Progression” Scenario in 2040
                                                                                                  • Figure 29: Forecast power generation installed capacity under “Consumer Evolution” scenario, by source, 2018-50
                                                                                                  • Figure 30: Future potential energy mix in “Consumer Evolution” Scenario in 2040
                                                                                                • Gas demand forecast
                                                                                                    • Figure 31: Forecast UK gas demand, 2018-50
                                                                                                • Retail Energy Market

                                                                                                  • Market development
                                                                                                      • Figure 32: Proportion of domestic electricity customers, by supplier type, by region, Q4 2000 and Q4 2019
                                                                                                      • Figure 33: Proportion of domestic gas customers of British Gas Trading and other suppliers, by region, March 2019
                                                                                                    • More than half of households still on more expensive default tariffs
                                                                                                        • Figure 34: Number of non-prepayment domestic gas customer accounts, by type of tariff, by supplier, April 2019
                                                                                                        • Figure 35: Number of non-prepayment domestic electricity customer accounts, by type of tariff, by supplier, April 2019
                                                                                                      • Price differential between average SVTs and cheapest market deals remains considerable, despite introduction of Default Tariffs cap
                                                                                                          • Figure 36: Average annual bill on SVT versus supplier’s cheapest fixed tariff, by major supplier, April-June 2019
                                                                                                        • Record numbers switch energy supplier
                                                                                                            • Figure 37: Number of supplier switches in the domestic gas and electricity markets and share of small suppliers, Great Britain, Q1 2014-Q1 2019
                                                                                                            • Figure 38: Number of supplier switches in the domestic gas and electricity markets, Great Britain, Q1 2013-Q1 2019
                                                                                                          • Over one in four energy customers now use small or medium suppliers
                                                                                                              • Figure 39: Domestic gas supply market shares in Great Britain, by company, 2014-18
                                                                                                              • Figure 40: Domestic electricity supply market shares in Great Britain, by company, 2014-18
                                                                                                          • Energy Policy and Legislative Environment

                                                                                                            • Government commitment to reduce carbon emissions
                                                                                                              • UK makes good process in reducing CO2 emissions to date, but on track to miss targets between 2023 and 2032
                                                                                                                • Policies to decarbonise electricity
                                                                                                                  • Renewables Obligation
                                                                                                                    • Feed-in Tariffs
                                                                                                                      • Carbon Price Floor
                                                                                                                        • Contracts for Difference
                                                                                                                          • Capacity Market
                                                                                                                            • The Renewable Heat Incentive
                                                                                                                              • Energy supplier obligation to improve energy efficiency of homes
                                                                                                                              • Regulatory Environment and Changes

                                                                                                                                • Industry regulation
                                                                                                                                  • Market reforms introduced in 2014 to encourage competition and supplier switching
                                                                                                                                    • Ofgem introduces further market reforms following CMA Energy Market investigation
                                                                                                                                      • Ofgem introduces temporary price cap on SVTs
                                                                                                                                      • Market Drivers

                                                                                                                                        • Drivers for investment in energy system and infrastructure
                                                                                                                                          • Decarbonisation of UK energy system
                                                                                                                                            • Government ambition to achieve net zero emissions by 2050 will push up electricity demand
                                                                                                                                              • Smart grid development to support low-carbon economy
                                                                                                                                                • Rise in distributed generation requires more active management of distribution network
                                                                                                                                                  • Growth in decentralised and renewable electricity generation will increase the complexity of operating a secure and cost-effective energy system
                                                                                                                                                    • Energy storage to play key role in transition to clean electricity supply system
                                                                                                                                                      • Electrification of transport creates new opportunities
                                                                                                                                                        • Market drivers in retail energy market
                                                                                                                                                          • Costs making up an average gas and electricity bill
                                                                                                                                                              • Figure 41: Breakdown of average large supplier dual-fuel household bill, 2017
                                                                                                                                                              • Figure 42: Breakdown of average domestic electricity bill, 2017
                                                                                                                                                              • Figure 43: Breakdown of average domestic gas bill, 2017
                                                                                                                                                            • Customer service is a key driver of loyalty
                                                                                                                                                              • Smart Meter rollout programme
                                                                                                                                                              • Companies and Brands – What You Need to Know

                                                                                                                                                                • First Utility becomes Shell Energy following acquisition by Shell
                                                                                                                                                                  • Proposed merger of Npower and SSE called off due to adverse market developments
                                                                                                                                                                    • Bundled tariffs to add customer value
                                                                                                                                                                      • Focus on green tariffs
                                                                                                                                                                        • Suppliers moving into home services and emerging connect homes market
                                                                                                                                                                        • Competitive Strategies

                                                                                                                                                                          • Recent acquisition activity
                                                                                                                                                                            • First Utility becomes Shell Energy following acquisition by Shell
                                                                                                                                                                              • Proposed merger of Npower and SSE called off due to adverse market developments
                                                                                                                                                                                • Mitsubishi takes 20% stake in OVO Energy
                                                                                                                                                                                  • Innovation in tariffs offerings
                                                                                                                                                                                    • Bundled tariffs to add customer value
                                                                                                                                                                                      • Focus on green tariffs
                                                                                                                                                                                        • Smart meters allow suppliers to offer more tailored tariffs
                                                                                                                                                                                          • Next-day switching to be introduced in 2021, increasing competitive pressures
                                                                                                                                                                                            • Emergence of electric vehicle tariffs
                                                                                                                                                                                              • Suppliers offer reward schemes to build customer loyalty
                                                                                                                                                                                                • Some suppliers are moving into home services and the emerging connected homes market
                                                                                                                                                                                                  • A number of supplier enter solar and energy storage market
                                                                                                                                                                                                    • Emergence of automatic switching services
                                                                                                                                                                                                    • Company Profiles

                                                                                                                                                                                                      • Centrica
                                                                                                                                                                                                        • Recent acquisitions and disposals
                                                                                                                                                                                                          • Centrica’s main focus is on energy supply and the customer-facing side of business while reducing exposure to generation
                                                                                                                                                                                                            • Centrica enters on-demand services market in 2017
                                                                                                                                                                                                              • Centrica to cut 4,000 UK staff by 2020 to manage challenges in retail energy market
                                                                                                                                                                                                                • Financial performance
                                                                                                                                                                                                                  • Figure 44: Financial analysis of Centrica, 2014-18
                                                                                                                                                                                                                  • Figure 45: Centrica revenue segmental analysis, 2018
                                                                                                                                                                                                                • British Gas Trading
                                                                                                                                                                                                                  • British Gas scraps SVTs to new customers and expands range of tariff offers and bundles
                                                                                                                                                                                                                    • Focus on innovative Connected Homes products
                                                                                                                                                                                                                      • Company review and outlook
                                                                                                                                                                                                                        • Figure 46: Financial analysis of British Gas Trading, 2014-18
                                                                                                                                                                                                                      • EDF Energy
                                                                                                                                                                                                                        • Planned new nuclear power stations
                                                                                                                                                                                                                          • Development of renewable assets
                                                                                                                                                                                                                            • Intense competition sees EDF Energy lose more customers in 2018
                                                                                                                                                                                                                              • EDF Energy moves into home services market
                                                                                                                                                                                                                                • Company strategy
                                                                                                                                                                                                                                  • Financial performance
                                                                                                                                                                                                                                    • Figure 47: Financial analysis of EDF Energy, 2013-17
                                                                                                                                                                                                                                    • Figure 48: EDF Energy revenue segmental analysis, 2018
                                                                                                                                                                                                                                  • E.ON Energy Solutions
                                                                                                                                                                                                                                    • E.ON enters UK solar and storage market
                                                                                                                                                                                                                                      • E.ON scraps SVTs for customers on fixed deal
                                                                                                                                                                                                                                        • E.ON moves all of its electricity customers onto 100% renewable electricity
                                                                                                                                                                                                                                          • Company strategy
                                                                                                                                                                                                                                            • Financial performance
                                                                                                                                                                                                                                              • Figure 49: Financial analysis of E.ON Energy Solutions, 2014-18
                                                                                                                                                                                                                                              • Figure 50: E.ON revenue segmental analysis, 2018
                                                                                                                                                                                                                                            • Npower
                                                                                                                                                                                                                                              • Npower rolls out two-year recovery plan
                                                                                                                                                                                                                                                • Npower announces further job cuts in 2019
                                                                                                                                                                                                                                                  • Meridian Energy and Npower launch online energy supplier Powershop
                                                                                                                                                                                                                                                    • Merger plans with SSE scrapped
                                                                                                                                                                                                                                                      • Financial performance
                                                                                                                                                                                                                                                        • Figure 51: Financial analysis of Npower, 2013-17
                                                                                                                                                                                                                                                        • Figure 52: RWE – UK revenue segmental analysis, 2018
                                                                                                                                                                                                                                                      • ScottishPower Energy Retail
                                                                                                                                                                                                                                                        • ScottishPower ditches standard tariffs
                                                                                                                                                                                                                                                          • Focus on improving customer service processes
                                                                                                                                                                                                                                                            • ScottishPower Energy Retail expands its Smart Energy Services offerings
                                                                                                                                                                                                                                                              • Financial performance
                                                                                                                                                                                                                                                                • Figure 53: Financial analysis of ScottishPower Energy Retail, 2014-18
                                                                                                                                                                                                                                                                • Figure 54: ScottishPower revenue segmental analysis, 2018
                                                                                                                                                                                                                                                              • SSE
                                                                                                                                                                                                                                                                • SSE and Npower scrap merger plans for their household supply businesses
                                                                                                                                                                                                                                                                  • SSE Energy Services looks to offer more bespoke, value-adding propositions and bundled services
                                                                                                                                                                                                                                                                    • Renewables at core of SSE Group’s business strategy
                                                                                                                                                                                                                                                                      • Financial performance
                                                                                                                                                                                                                                                                        • Figure 55: Financial analysis of SSE, 2015-19
                                                                                                                                                                                                                                                                        • Figure 56: SSE revenue segmental analysis, 2019
                                                                                                                                                                                                                                                                      • Shell Energy Retail (formerly First Utility)
                                                                                                                                                                                                                                                                        • First Utility acquired by Shell
                                                                                                                                                                                                                                                                          • Shell Energy Retail to focus on renewable electricity, alongside gas, broadband and smart home technology
                                                                                                                                                                                                                                                                            • Financial performance
                                                                                                                                                                                                                                                                              • Figure 57: Financial analysis of Shell Energy Retail, 2013-17
                                                                                                                                                                                                                                                                            • OVO Energy
                                                                                                                                                                                                                                                                              • OVO invests heavily in technologies such as energy storage and electric vehicle charging
                                                                                                                                                                                                                                                                                • Mitsubishi takes 20% stake in OVO Energy
                                                                                                                                                                                                                                                                                  • Company Strategy
                                                                                                                                                                                                                                                                                    • Financial performance
                                                                                                                                                                                                                                                                                      • Figure 58: Financial analysis of OVO Energy, 2013-17
                                                                                                                                                                                                                                                                                  • The Consumer – What You Need to Know

                                                                                                                                                                                                                                                                                    • 44% have switched supplier in last two years
                                                                                                                                                                                                                                                                                      • Four in 10 consumers plan to switch tariff and/or supplier
                                                                                                                                                                                                                                                                                        • Half of energy consumers have not switched supplier because they are happy with current supplier
                                                                                                                                                                                                                                                                                          • Just under half find the option to buy renewable energy products from energy suppliers appealing
                                                                                                                                                                                                                                                                                            • One in three find the option to buy bundles of services from energy suppliers appealing
                                                                                                                                                                                                                                                                                            • Current Supplier

                                                                                                                                                                                                                                                                                              • ‘Big six’ supply gas and/or electricity to around 70% of households
                                                                                                                                                                                                                                                                                                  • Figure 59: Current gas supplier, May 2019
                                                                                                                                                                                                                                                                                                  • Figure 60: Current electricity supplier, May 2019
                                                                                                                                                                                                                                                                                                • Regional differences in market shares
                                                                                                                                                                                                                                                                                                • Energy Consumer Engagement and Behaviour

                                                                                                                                                                                                                                                                                                  • 44% have switched supplier in last two years
                                                                                                                                                                                                                                                                                                    • Younger people and households on higher incomes most engaged in market
                                                                                                                                                                                                                                                                                                      • Private and social housing renters much less likely to have switched supplier than homeowners
                                                                                                                                                                                                                                                                                                          • Figure 61: Customer engagement in energy market, May 2019
                                                                                                                                                                                                                                                                                                        • Two in three consumers are on a fixed-rate energy tariff
                                                                                                                                                                                                                                                                                                          • 48% of consumers regularly check price comparison sites for energy tariffs
                                                                                                                                                                                                                                                                                                            • Four in 10 consumers plan to switch tariff and/or supplier
                                                                                                                                                                                                                                                                                                              • 44% of consumers have smart meter installed
                                                                                                                                                                                                                                                                                                              • Reasons for Not Switching Supplier

                                                                                                                                                                                                                                                                                                                • Half of energy consumers have not switched supplier because they are happy with current supplier
                                                                                                                                                                                                                                                                                                                  • Figure 62: Reasons for not switching gas and/or electricity supplier in the last two years, May 2019
                                                                                                                                                                                                                                                                                                                • One in five believe potential savings are not worth the hassle of switching
                                                                                                                                                                                                                                                                                                                  • 12% are put off switching because cheapest deals are offered by firms they’ve never heard off
                                                                                                                                                                                                                                                                                                                    • 9% of consumers stick with their current supplier because of good reward scheme
                                                                                                                                                                                                                                                                                                                    • Customer Satisfaction and Attitudes towards Supplier Selection

                                                                                                                                                                                                                                                                                                                      • 84% are satisfied with customer service they receive from energy supplier
                                                                                                                                                                                                                                                                                                                        • Figure 63: satisfaction with current supplier and attitudes towards supplier selection, May 2019
                                                                                                                                                                                                                                                                                                                      • Most people are happy to switch supplier frequently to get cheapest deal
                                                                                                                                                                                                                                                                                                                        • Value-added home services welcomed by just over half of consumers
                                                                                                                                                                                                                                                                                                                          • Just over half of consumers prefer to interact with customer services via online live chat or virtual assistance
                                                                                                                                                                                                                                                                                                                          • Attitudes towards Energy Suppliers

                                                                                                                                                                                                                                                                                                                            • Just under half find the option to buy renewable energy products from energy suppliers appealing
                                                                                                                                                                                                                                                                                                                              • 46% of consumers find the option to buy energy-saving devices from energy suppliers appealing
                                                                                                                                                                                                                                                                                                                                • Figure 64: Attitudes towards energy suppliers and product offer, May 2019
                                                                                                                                                                                                                                                                                                                              • One in three find the option to buy bundles of services from energy suppliers appealing
                                                                                                                                                                                                                                                                                                                                • 39% potentially interested in automatic energy switching service
                                                                                                                                                                                                                                                                                                                                  • Just over a third of consumers agree that greener energy is worth paying more for
                                                                                                                                                                                                                                                                                                                                  • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                                                                                                                                                                                                                      • Abbreviations
                                                                                                                                                                                                                                                                                                                                        • Methodology
                                                                                                                                                                                                                                                                                                                                        • Further Sources and Contacts

                                                                                                                                                                                                                                                                                                                                          • Trade associations & regulatory bodies
                                                                                                                                                                                                                                                                                                                                            • Energy Networks Association
                                                                                                                                                                                                                                                                                                                                              • Energy Industries Council
                                                                                                                                                                                                                                                                                                                                                • Energy UK
                                                                                                                                                                                                                                                                                                                                                  • 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
                                                                                                                                                                                                                                                                                                                                                                • Utility Week
                                                                                                                                                                                                                                                                                                                                                                  • Energy Now
                                                                                                                                                                                                                                                                                                                                                                    • Renewable Energy Focus
                                                                                                                                                                                                                                                                                                                                                                      • Resource
                                                                                                                                                                                                                                                                                                                                                                        • Solar UK
                                                                                                                                                                                                                                                                                                                                                                          • Smart Solar
                                                                                                                                                                                                                                                                                                                                                                            • Wind Energy Network
                                                                                                                                                                                                                                                                                                                                                                              • Wind Power Monthly
                                                                                                                                                                                                                                                                                                                                                                                • Trade events
                                                                                                                                                                                                                                                                                                                                                                                  • Offshore Europe
                                                                                                                                                                                                                                                                                                                                                                                    • RWM 2019
                                                                                                                                                                                                                                                                                                                                                                                      • edie live 2020

                                                                                                                                                                                                                                                                                                                                                                                      Energy Industry - UK - August 2019

                                                                                                                                                                                                                                                                                                                                                                                      £1,495.00 (Excl.Tax)