This report addresses the following key questions concerning the UK energy market:
How do UK and EU policies affect the development of the energy sector?
What are the key market issues facing gas and electricity suppliers?
What are the key reasons for consumers switching energy supplier?
How have major energy suppliers performed over the last five years?
What is the potential future energy mix?
Definitions
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.
One billion refers to one thousand million.
Some numbers in tables may not add due to rounding.
Methodology
Reports are researched and written by MBD’s in-house, specialist business-to-business consultants. Research is based on both an analysis of official information and on original, trade research, providing both a quantitative and qualitative view of the market. MBD’s unique range of frequently updated reports provide an integrated body of ongoing research, enabling deep understanding of the prevailing trends and of the drivers of these trends based on trade opinion.
Abbreviations
The following abbreviations appear in this report:
| BOE | Bank of England |
| CBI | Confederation of British Industry |
| CCGT | Combines Cycle Gas Turbine |
| CCS | Carbon Capture and Storage |
| CERT | Carbon Emission Reduction Target |
| CESP | Community Energy Saving Programme |
| CHP | Combined Heat and Power |
| CfDs | Contracts for Difference |
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Market Positioning
The electricity and gas markets in the UK are privatised.
The electricity and gas markets are regulated by the Gas and Electricity Markets Authority, operating through the Office of Gas and Electricity Markets (Ofgem). Ofgem's role is to protect the interest of consumers by promoting competition where appropriate. Ofgem issues companies with licences to carry out activities in the electricity and gas sectors, sets the levels of return that the monopoly networks companies can make, and decides on changes to market rules.
The energy industry in the UK has three key stakeholders:
Generators responsible for generating the energy we use in our homes and businesses. Generated electricity flows into the National Transmission network and through to the regional distribution networks
Distributors are the owners and operators of the network of towers and cables that bring electricity from the National Transmission Network to homes and businesses. Even so, they do not sell electricity to the end consumer. This is carried out by suppliers.
Energy suppliers are the companies that supply and sell electricity to the consumer, Suppliers buy energy in the wholesale market and sell it on to customers. Suppliers work in a competitive market and customers can choose any supplier to provide them with gas and electricity.
The most significant change in electricity generation in recent years has been the rise in power supply from renewable sources. Interest in renewable energy in the UK has increased due to new UK and EU targets for reductions in carbon emissions and the promotion of renewable electricity power generation and heat through commercial incentives, such as the Renewable Obligation Certificate scheme (ROCs), feedin tariffs (FITs), and the Renewable Heat Incentive. Hydroelectric schemes were historically the largest producers of renewable electricity in the UK, but these have been surpassed during the last decade by wind power schemes, for which the UK has large potential resources.
However, there are now increased uncertainties in the outlook for the renewables sector with recent subsidy cuts to a number of renewable technologies, including onshore wind and large-scale solar PV, together with the transition from RO to the new Contracts for Difference (CfD) regime. Nonetheless, key technologies, such as offshore wind, are set for continued growth.
