Table of Contents
Overview
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- What you need to know
- Key issues covered in this Report
- Covered in this Report
- COVID-19: Market context
- Economic and other assumptions
Executive Summary
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- Impact of COVID-19 on the UK energy industry
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- Figure 1: Short, medium and long term impact of COVID-19 on UK energy industry, 26 August 2020
- The market
- Shift from coal-fired electricity generation to gas-fired and renewables
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- Figure 2: Proportional importance of fuel source in UK electricity generation, 2015 and 2019
- Ambition to achieve net zero emissions by 2050 will push up electricity demand
- Energy switching at record high
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- Figure 3: Number of supplier switches in the domestic gas and electricity markets, Great Britain, Q1 2014-Q1 2020
- Companies and brands
- Competitive retail energy supply market starting to consolidate
- Over one in four energy customers now use small or medium suppliers
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- Figure 4: Domestic electricity supply market shares in Great Britain, by company, 2015-19
- The consumer
- Many consumers are proactive in market engagement, with 44% regularly checking comparison sites
- Nearly a third are on a green tariff
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- Figure 5: Customer engagement in energy market, May 2020
- Just under half of consumers prefer to interact with customer services via online live chat or virtual assistance
- 39% potentially interested in automatic energy switching service
COVID-19 and the Energy Industry
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- Impact on the market
- Electricity demand drops during lockdown
- Electricity mix shifts further towards renewables
- A more consolidated retail energy sector is expected to emerge from the COVID-19 crisis
- The energy sector could play a central role in driving post-COVID-19 economic recovery
- Impact on consumers
- Rise in consumers falling behind on bill payments
- Switching rates set to increase due to financial pressure and higher awareness of energy usage
- Impact on companies and brands
- COVID-19 is set to accelerate the digital transformation in the retail energy sector
- Suppliers step up to help vulnerable customers, resulting in increased public trust
- Competition set to further intensify as customers are more willing to shop around for better deals
- COVID-19: Market context
Issues and Insights
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- Smart meters enable suppliers to offer more innovative products, but roll-out programme disrupted by COVID-19
- Automatic switching services starting to disrupt market
- Suppliers move into growing EV market though innovative tariffs and partnerships
The Market – Key Takeaways
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- COVID-19 accelerates the shift to renewables generation
- Ambition to achieve net zero emissions by 2050 will require further significant investment in low carbon electricity generation
Electricity Demand and Generation
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- Trends in electricity supply
- Total electricity supply
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- Figure 6: Analysis of electricity supply in the UK, 2015-19
- Figure 7: Analysis of electricity supply in the UK, 2015-19
- Electricity generation by type of fuel
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- Figure 8: Analysis of electricity generation in the UK, by type of fuel used, 2015-19
- Figure 9: Proportional importance of fuel source in UK electricity generation, 2015 and 2019
- Coal generation
- Remaining four coal-fired power stations set to close or convert before 2025
- Drax aims to use BECCS technology to become carbon negative by 2030
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- Figure 10: Analysis of electricity generated in coal-fired power stations in the UK, 2012-19
- Gas/CCGT generation
- Gas generation capacity set to continue to play an important part in the electricity generation mix, providing flexibility and back-up for renewables
- 41% of UK electricity generation is sourced from gas-fired plants
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- Figure 11: Analysis of electricity generated in gas-fired power stations in the UK, 2012-19
- Figure 12: Analysis of electricity supplied from gas-fired power stations in the UK, 2012-19
- Nuclear power generation
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- Figure 13: UK nuclear sites’ planned closure dates, as of July 2020
- Uncertainties surrounding government’s nuclear new build plans
- Hinkley Point C only new nuclear plant under construction
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- Figure 14: Analysis of electricity generated in nuclear power stations in the UK, 2012-19
- Renewables generation
- Government commitment to achieve net zero carbon emission target by 2050
- UK clean energy investment hampered by lack of policy clarity
- 37% of UK’s electricity generation in 2019 came from renewable sources
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- Figure 15: Renewable electricity generation in the UK, 2015-19
- Figure 16: Electricity generation from on- and offshore wind, 2015-19
- Onshore wind
- Offshore wind
- Solar power
- Hydro electricity
- Bioenergy
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- Figure 17: Bioenergy electricity generation capacity, by type of plant, 2015-19
- Renewable electricity capacity development pipeline
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- Figure 18: Renewable energy projects in pipeline, by technology, as of June 2020
Gas Demand and Supply
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- UK’s increased dependence on gas imports
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- Figure 19: Total UK gas supply, 2015-19
- Figure 20: Total UK gas supply, 2015-19
- Government suspends shale gas fracking indefinitely
- Wholesale gas prices
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- Figure 21: Average wholesale gas prices, 2008-19
Future Energy Mix and Demand
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- Future energy demand under National Grid’s Future Energy Scenarios
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- Figure 22: Annual power demand in Great Britain, 2019-50
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- Figure 23: Annual power demand in Great Britain, 2019-50
- Future potential energy mix
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- Figure 24: Projected installed electricity generation capacity (incl. storage and interconnectors), by scenario, 2019, 2030 and 2050
- Gas demand forecast
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- Figure 25: Forecast UK gas demand, 2019-50
Retail Energy Market
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- Market development
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- Figure 26: Proportion of domestic electricity customers, by supplier type, by region, Q1 2020
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- Figure 27: Proportion of domestic gas customers of British Gas Trading and other suppliers, by region, March 2020
- Around half of households are on default tariffs
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- Figure 28: Number of non-prepayment domestic gas customer accounts, by type of tariff, by supplier, April 2020
- Figure 29: Number of non-prepayment domestic electricity customer accounts, by type of tariff, by supplier, April 2020
- Despite the introduction of default tariff cap, price differential between SVTs and cheapest deals remains considerable
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- Figure 30: Average annual bill on SVT versus supplier’s cheapest fixed tariff, by major supplier, Q2 2020
- Energy switching at record high
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- Figure 31: Number of supplier switches in the domestic gas and electricity markets and share of small suppliers, Great Britain, Q1 2015 - Q1 2020
- Figure 32: Number of supplier switches in the domestic gas and electricity markets, Great Britain, Q1 2014-Q1 2020
- Three in 10 energy customers now use small or medium suppliers
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- Figure 33: Domestic gas supply market shares in Great Britain, by company, 2015-19
- Figure 34: Domestic electricity supply market shares in Great Britain, by company, 2015-19
The Impact of COVID-19 on the Energy Industry
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- Initial months of COVID-19 see reduced electricity demand from commercial and industrial sectors, slightly offset by increased domestic demand
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- Figure 35: Short, medium and long term impact of COVID-19 on UK energy industry, 26 August 2020
- Lockdown
- Re-emergence
- Recovery
Energy Policy and Legislative Environment
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- The Climate Change Act 2008
- UK commits to 2050 net zero target
- UK makes good process in reducing CO2 emissions to date, but steeper reduction required to progress towards net zero
- 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
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- Industry regulation
- Market reforms introduced in 2014 to encourage competition and supplier switching
- Ofgem introduces further reforms following CMA energy market investigation
- Ofgem introduces temporary price cap on SVTs
Market Drivers
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- Drivers for investment in energy system and infrastructure
- Decarbonisation of UK energy system
- Ambition to achieve net zero emissions by 2050 will push up electricity demand
- 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
- Wholesale costs are largest component of household energy bills
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- Figure 36: Breakdown of average large supplier dual-fuel household bill, 2018
- Figure 37: Breakdown of average domestic electricity bill, 2018
- Figure 38: Breakdown of average domestic gas bill, 2018
- High quality customer service remains key driver for customer loyalty
- Smart Meter rollout programme
- Rollout plagued by technical issues and delays
- Nearly a third of all meters now operate in smart mode
- Smart meters enable suppliers to offer more innovative products and services
- Smart meters enable peer-to-peer trading and flexible energy market
Companies and Brands – Key Takeaways
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- Retail energy supply market starting to consolidate
- Rise in market exits as some new entrants struggle to gain a foothold in highly competitive market
Competitive Strategies
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- Recent acquisitions and strategic partnerships
- OVO Energy becomes second largest supplier following acquisition of SSE’s retail business
- E.ON takes over Npower
- E.ON and Kraken Technologies form strategic partnership to revamp E.ON’s UK energy retail business with newly formed subsidiary E.ONnext
- Mitsubishi takes 20% stake in OVO Energy
- Focus on green tariffs
- Suppliers offer bundled services to add customer value
- Suppliers move into growing EV market though innovative tariffs/bundles and partnerships
- Some suppliers are moving into home services and the emerging connected homes market
- Energy suppliers tap into residential solar and energy storage market
- Automatic switching services starting to disrupt market
Company Profiles
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- Centrica
- Centrica deepens restructuring efforts to create, simpler, leaner group
- Centrica’s main focus is on energy supply and the customer-facing side of the business while reducing exposure to generation
- Total number of UK customer accounts increase in 2019
- Financial performance
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- Figure 39: Financial analysis of Centrica, 2015-19
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- Figure 40: Centrica revenue segmental analysis, 2019
- British Gas Trading
- British Gas expands range of tariff offers and bundles
- British Gas loyalty scheme improves customer retention
- Focus on innovative connected homes products
- Company review and outlook
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- Figure 41: Financial analysis of British Gas Trading, 2014-18
- EDF Energy
- Planned new nuclear power stations
- Development of renewable assets
- EDF Energy sees customer accounts increase as it takes on accounts from failed suppliers
- EDF Energy moves into home services market
- EDF moves into EV charging market
- Company strategy
- Financial performance
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- Figure 42: Financial analysis of EDF Energy, 2014-18
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- Figure 43: EDF Energy revenue segmental analysis, 2019
- E.ON Energy Solutions
- E.ON takes over Npower
- E.ON and Kraken Technologies form strategic partnership to revamp E.ON’s UK energy retail business with newly formed subsidiary E.ONnext
- E.ON enters UK solar and storage market
- E.ON moves all electricity customers onto 100% renewable electricity
- Company strategy
- Financial performance
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- Figure 44: Financial analysis of E.ON Energy Solutions, 2014-18
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- Figure 45: E.ON UK revenue segmental analysis, 2019
- Npower
- Npower taken over by E.ON
- Npower announces further job cuts in 2019
- Meridian Energy and Npower launch online energy supplier Powershop
- Financial performance
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- Figure 46: Financial analysis of Npower, 2014-18
- ScottishPower Energy Retail
- Focus on improving customer service processes and digitisation of customer proposition
- ScottishPower Energy Retail expands its Smart Energy Services offerings
- Financial performance
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- Figure 47: Financial analysis of ScottishPower Energy Retail, 2015-19
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- Figure 48: ScottishPower revenue segmental analysis, 2019
- SSE
- SSE sells retail unit to OVO Energy
- Renewables at core of SSE Group’s business strategy
- Financial performance
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- Figure 49: Financial analysis of SSE, 2016-20
- Figure 50: 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
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- Figure 51: Financial analysis of Shell Energy Retail, 2014-18
- OVO Energy
- OVO Energy becomes UK’s second largest supplier following acquisition of SSE’s retail business
- OVO Energy to cut 2,600 jobs
- OVO invests heavily in technologies such as energy storage and EV charging
- Mitsubishi takes 20% stake in OVO Energy
- Company strategy
- Financial performance
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- Figure 52: Financial analysis of OVO Energy, 2014-18
The Consumer – Key Takeaways
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- Just under half of energy customers have switched supplier in last two years
- Many consumers are proactive in market engagement, with 44% regularly checking comparison sites
- Nearly a third are on a green tariff
- Just under half of consumers prefer to interact with customer services via online live chat or virtual assistance
Current Supplier
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- ‘Big six’ supply gas and/or electricity to around 70% of households
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- Figure 53: Current gas supplier, May 2020
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- Figure 54: Current electricity supplier, May 2020
- Regional differences in market share
Energy Consumer Engagement and Behaviour
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- Just under half of energy customers have switched supplier in last two years
- Higher income households more likely to switch
- Renters much less likely to have switched supplier than homeowners
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- Figure 55: Customer engagement in energy market, May 2020
- Two in three consumers are on a fixed-rate energy tariff
- Nearly a third are on a green tariff
- Many consumers are proactive in market engagement, with 44% regularly checking comparison sites
- 39% of consumers plan to switch tariff and/or supplier
- 41% of consumers have smart meter installed
- 15% of consumers signed up to an automatic energy switching service
Reasons for Not Switching Supplier
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- Satisfaction with current supplier most common reason for not switching
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- Figure 56: Reasons for not switching gas and/or electricity supplier in the last two years, May 2020
- A fifth of non-switchers believe potential savings are not worth the hassle of switching
- 13% are put off switching because cheapest deals are offered by firms they’ve never heard off
Attitudes towards Supplier Selection and Interaction
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- Four out of five consumers more likely to stay with their current supplier if offered a new/better loyalty scheme
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- Figure 57: Attitudes towards supplier selection and interaction, May 2020
- Most people are happy to switch supplier frequently to get cheapest deal
- Majority of households with smart meters monitor their energy use more closely
- Value-added home services welcomed by 43% of consumers
- Just under half of consumers prefer to interact with customer services via online live chat or virtual assistance
Attitudes towards Energy Suppliers
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- Two out of five find the option to buy renewable energy products from energy suppliers appealing
- 39% of consumers find the option to buy energy-saving devices from energy suppliers appealing
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- Figure 58: Attitudes towards energy suppliers and product offer, May 2020
- One in three find the option to buy bundles of services from energy suppliers appealing
- 39% potentially interested in automatic energy switching service
Appendix – Data Sources, Abbreviations and Supporting Information
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- Abbreviations
- Methodology
Further Sources and Contacts
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- 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
- Smart Solar
- Wind Energy Network
- Wind Power Monthly
- Trade events
- Offshore Europe
- RWM 2020
- Net-Zero Live 2020
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