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Energy Industry - UK - August 2019

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

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