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ENERGY INDUSTRY - UK - AUGUST 2018

Published By :

Mintel

Published Date : Aug 2018

Category :

Power

No. of Pages : N/A

As competition in the energy retail market continues to heat up, suppliers are branching out into other utility services, such as broadband and mobile phone contracts, and bundling their multi-utility offering to gain a competitive edge. This trend is set to continue, with more suppliers offering diversified services to broaden appeal to customers. 

A number of energy suppliers are also moving into the emerging ‘home services’ market, responding to the expanding on-demand economy and consumers’ growing demand for digital services that make their lives easier. ‘Home services’ stretches from boiler repair to smart thermostats, and the connected homes market.

Table of contents
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, 2013 and 2017
Onshore wind and solar generation capacity growth slows due to government policy cuts
UK clean energy investment has slowed considerably since 2015
Energy supplier switching rates at record high
Figure 2: Number of supplier switches in the domestic gas and electricity markets, Great Britain, 2012-18
Companies and brands
UK energy supply market continues to be dominated by ‘big six’
Figure 3: Domestic electricity supply market shares in Great Britain, by company 2013-17
Proposed merger of Npower and SSE would create second largest supplier
Energy suppliers are branching out into multi-utility market
Suppliers moving into home services and emerging connected homes market
The consumer
40% of respondents 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 2018
Most people satisfied with customer service received from energy supplier
Two out of five people also find the option to buy bundles of services from an energy supplier appealing
What we think
ISSUES AND INSIGHTS
Government policy changes dampen UK clean energy investment
The facts
The implications
Energy suppliers diversify in intensely competitive market
The facts
The implications
Electrification of transport creates new opportunities
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Shift from coal-fired electricity generation to gas-fired and renewables
20% of UK electricity is sourced from nuclear plants
Wind accounts for around half of electricity generation from renewable sources
Onshore wind and solar generation capacity growth slows due to government policy cuts
Energy supplier switching rates at record high
Over one in five energy customers now use small or medium suppliers
More than half of households remain on more expensive variable tariffs
ELECTRICITY DEMAND AND GENERATION
Trends in electricity supply
Total electricity supply
Figure 5: Analysis of electricity supply in the UK, 2013-17
Figure 6: Analysis of electricity supply in the UK, 2013-17
Electricity generation by type of fuel
Figure 7: Analysis of electricity generation the UK, by type of fuel used, 2013-17
Figure 8: Proportional importance of fuel source in UK electricity generation, 2013 and 2017
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, 2009-16
Gas/CCGT generation
Government scales back forecasts for new gas-fired power stations
Few new gas-fired station being built due to poor financial incentives and success of renewables
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, 2010-17
Figure 11: Analysis of electricity supplied from gas-fired power stations in the UK
Nuclear power generation
Figure 12: UK nuclear sites planned closure dates, as of July 2018
Nuclear new build policy
Nuclear new build projects
Around 20% of electricity is sourced from nuclear power plant
Figure 13: Analysis of electricity generated in nuclear power stations in the UK, 2010-17
Renewables generation
The government remains committed to renewables target despite Brexit vote
UK clean energy investment has slowed considerably since 2015
Trends in renewable electricity generation by source
Figure 14: Renewable electricity generation in the UK, 2013-17
Figure 15: Electricity generation from on- and offshore wind, 2013-17
Onshore Wind
Offshore Wind
Solar power
Hydro electricity
Bioenergy
Figure 16: Bioenergy electricity generation capacity, by type of plant, 2012-16
Renewable electricity capacity development pipeline
Figure 17: Renewable energy projects in pipeline, by technology, as of April 2018
GAS DEMAND AND SUPPLY
UK increasingly dependent on gas imports
Figure 18: Total UK gas supply, 2013-17
Figure 19: Total UK gas supply, 2013-17
Figure 20: Average wholesale gas prices, 2006-17
FUTURE ENERGY MIX AND DEMAND
Future energy demand under National Grid’s Future Energy Scenarios
Figure 21: Annual power demand in Great Britain, 2017-50
Figure 22: Annual power demand in Great Britain, 2017-50
Future potential energy mix
Figure 23: Forecast power generation installed capacity under “Community Renewables” scenario, by source, 2017-50
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, 2017-50
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, 2017-50
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, 2017-50
Figure 30: Future potential energy mix in Consumer Evolution Scenario in 2040
Gas demand forecast
Figure 31: Forecast UK gas demand, 2017-50
RETAIL ENERGY MARKET
Market development
Figure 32: Proportion of domestic electricity customers by supplier type, by region, 2000 and 2017
Figure 33: Proportion of domestic gas customers of British Gas Trading and other suppliers, by region, March 2018
Competition in retail market focused on fixed tariffs
But more than half of households remain on more expensive variable tariffs
Figure 34: Number of non-prepayment domestic customer accounts by type of tariff, by supplier, October 2017
Ofgem introduces measures to help those on poor value tariffs
Price differential between fixed and variable tariffs shows switching can offer considerable savings
Figure 35: Average annual bill on SVT versus supplier’s cheapest fixed tariff, by major supplier, January-March 2018
Some suppliers are scrapping standard variable tariffs
Energy supplier switching rates at record high
Figure 36: Number of supplier switches in the domestic gas and electricity markets and share of small suppliers, Great Britain, Q1 2012-Q1 2018
Figure 37: Number of supplier switches in the domestic gas and electricity markets, Great Britain, 2013-17
Over one in five energy customers now use small or medium suppliers
Figure 38: Domestic gas supply market shares in Great Britain, by company 2013-17
Figure 39: Domestic electricity supply market shares in Great Britain, by company 2013-17
ENERGY POLICY AND LEGISLATIVE ENVIRONMENT
UK committed to reducing carbon emissions by 80% below 1990 levels by 2050
UK currently on track to miss emission reduction 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 set to introduce temporary price cap on SVTs by end of 2018
MARKET DRIVERS
Drivers for investment in energy system and infrastructure
Decarbonisation of UK energy system
Smart grid development to support low-carbon economy
Rapid increase in distributed generation
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 40: Breakdown of average large supplier dual fuel household bill, 2016
Figure 41: Breakdown of average domestic electricity bill, 2016
Figure 42: Breakdown of average gas bill, 2016
Customer service is a key driver of loyalty
Smart Meter roll-out programme
First-generation (SMETS1) smart meters need to be upgraded or replaced, as they can revert to being ‘dumb’ if consumers switch supplier
Potential benefits and opportunities offered by smart meters
Widespread adoption of smart meters could attract new market entrants, including tech firms
Peer-to-peer trading could allow consumers to bypass energy suppliers
COMPANIES AND BRANDS – WHAT YOU NEED TO KNOW
UK energy supply market continues to be dominated by ‘big six’
Shell enters energy retail market through acquisition of First Utility
Proposed merger of Npower and SSE would create second largest supplier
Energy suppliers are branching out into multi-utility market
Suppliers moving into home services and emerging connect homes market
COMPETITIVE STRATEGIES
Consolidation/Acquisition
Shell acquires First Utility
Proposed merger of Npower and SSE
Centrica acquires technology firms to support Connected Homes
OVO Energy acquires CORGI Home Plan in transition to truly integrated energy services company
Innovation in tariffs offerings
Bundled tariffs to add customer value
Focus on green tariffs
Emergence of electric vehicle tariffs
Some major suppliers scrap SVTs in 2018
Suppliers offer reward schemes to build customer loyalty
Energy suppliers branch out into multi-utility market to add value and differentiate offerings
Some suppliers are moving into home services and the emerging connected homes market
E.ON enters UK solar and storage market
COMPANY PROFILES
Centrica
Recent acquisitions and disposals
Centrica adopts new strategy to focus on energy supply and the customer-facing side of business
Financial performance
Figure 43: Financial analysis of Centrica, 2013-17
Figure 44: Centrica revenue segmental analysis, 2017
British Gas Trading
British Gas scraps standard variable tariffs to new customers
Focus on innovative Connected Homes products
Recent acquisition will support Connected Homes
Company review and outlook
Figure 45: Financial analysis of British Gas Trading, 2012-16
EDF Energy
Planned new nuclear power stations
Development of renewable assets
Intense competition sees EDF Energy lose more customers in 2017
But innovative tariffs secure sales
EDF Energy eyes move into home services market
Company strategy
Financial performance
Figure 46: Financial analysis of EDF Energy, 2013-17
Figure 47: EDF Energy revenue segmental analysis, 2017
E.ON Energy Solutions
E.ON enters UK solar and storage market
E.ON to scrap SVTs for customers on fixed deal
Company strategy
Financial performance
Figure 48: Financial analysis of E.ON Energy Solutions, 2013-17
Figure 49: E.ON revenue segmental analysis, 2017
Npower
Npower rolls out two-year recovery plan
Npower continued to lose customer accounts in 2017
Meridian Energy and Npower launch online energy supplier Powershop
SSE and Npower in merger talks
Financial performance
Figure 50: Financial analysis of Npower, 2012-16
Figure 51: RWE – UK revenue segmental analysis, 2017
ScottishPower Energy Retail
Scottish Power to ditch standard tariffs
Customer numbers down in 2017
Company Performance & Strategy
Figure 52: Financial analysis of ScottishPower Energy Retail, 2012-16
Figure 53: ScottishPower revenue segmental analysis, 2017
SSE
SSE and Npower in talks to merge retail businesses
Renewable generation accounts for 28% of electricity output in 2017/18
SSE loses more customers in 2017/18
Company strategy
Financial performance
Figure 54: Financial analysis of SSE, 2014-18
Figure 55: SSE revenue segmental analysis, 2018
First Utility
First Utility acquired by Shell
First Utility diversifies to become multi-utility brand
Financial performance
Figure 56: Financial analysis of First Utility, 2012-16
OVO Energy
OVO launches BOOST –A standalone brand for the prepayment sector
Recent acquisitions
OVO launches the world’s first widely available domestic vehicle-to-grid charger
Company strategy
Financial performance
Figure 57: Financial analysis of OVO Energy, 2012-16
THE CONSUMER – WHAT YOU NEED TO KNOW
‘Big six’ continue to dominate gas and electricity supply market
Two in five people have switched supplier in the last two years
40% of respondents plan to switch tariff and/or supplier
Just under half of consumers regularly check price comparison sites for energy tariffs
Most people satisfied with customer service from energy supplier
Most people would like to see energy suppliers provide “greener energy”
CURRENT SUPPLIER
British Gas remains largest supplier in gas and electricity supply market
Figure 58: Current gas supplier, May 2018
Figure 59: Current electricity supplier, May 2018
British Gas boasts a particularly high gas market share in Inner & Greater London
ENERGY CONSUMER ENGAGEMENT AND BEHAVIOUR
41% have switched supplier in last two years
Older people and households on lower income are less likely to switch
Renters are considerably less engaged in market than home owners
Figure 60: Customer engagement in energy market, May 2018
Two-thirds are on a fixed-rate tariff
40% of respondents plan to switch tariff and/or supplier
Just under half of consumers regularly check price comparison sites for energy tariffs
Over a third of respondents have directly contacted suppliers to ask to be moved onto cheaper tariff
Majority of consumers do not have smart meter installed
REASONS FOR NOT SWITCHING SUPPLIER
Over half of energy consumers have not switched supplier because they are happy with current supplier
Figure 61: Reasons for not switching gas and/or electricity supplier in the last two years, May 2018
20% believe potential savings are not worth the hassle of switching
11% are put off switching because cheapest deals are offered by firms they’ve never heard off
1 in 10 stick with their current supplier because of good reward scheme
CUSTOMER SATISFACTION AND ATTITUDES TOWARDS SUPPLIER SELECTION
85% are satisfied with customer service they receive from energy supplier
Figure 62: satisfaction with current supplier and attitudes towards supplier selection, May 2018
Most people are happy to switch supplier frequently to get cheapest deal
The government’s proposed price cap may deter people from switching
ATTITUDES TOWARDS ENERGY SUPPLIERS
Most people would like to see energy suppliers provide “greener energy”
Figure 63: Attitudes towards energy suppliers, May 2018
Only a third agree that a firm’s reputation is more important than price
41% of people find the option to buy energy-saving devices from energy suppliers appealing
Two out of five people find the option to buy bundles of services from energy suppliers appealing
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 2018
edie live 2018

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