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GAS SUPPLY AND DISTRIBUTION-UK-MARCH 2018

Published By :

Mintel

Published Date : Mar 2018

Category :

Industry Profile

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 a broadband, and bundling their multi-utility offering to gain a competitive edge. The trend towards multi-utility brands is set to continue, with more suppliers offering diversified services to broaden their appeal to customers. Companies are also looking to gain a competitive position in the emerging ‘home services’ market, responding to the expanding on-demand economy and consumers’ growing demand for digital services that make their lives easier.

Table of Contents

EXECUTIVE SUMMARY
The market
Domestic and power generation sectors dominate UK gas demand
Demand for gas from the domestic sector strongly influenced by changing weather patterns
Figure 1: Gas consumption by key end use sectors, 2013-17
Capital expenditure in gas transmission and distribution industry up by 2% in 2016/17
Figure 2: Total gas transmission and distribution capital expenditure, 2012/13-2016/17
Domestic energy supplier switching rates at record high
One in five energy customers now use small or medium suppliers
Energy suppliers are branching out into non-energy services to differentiate their offering
Market factors
UK increasingly dependent on natural gas imports
Figure 3: UK Gas Supply, 2013-17
Iron Mains Replacement Programme (IMRP) drives replacement expenditure by gas distribution network operators
New regulatory framework introduced for current control period
CMA energy market investigation
The CMA has put forward a package of remedies to free-up competition and innovation in the
Energy retail market facing further government intervention, including price cap on SVTs
Companies
Transmission and distribution industry structure
Gas supply industry continues to be dominated by ‘big six’ energy firms...
... but independent suppliers are rapidly gaining market share
What we think
KEY INSIGHTS
How are gas suppliers differentiating their offering to stay ahead in an increasingly competitive retail energy market ?
How does Ofgem’s new regulatory framework - the RIIO model - impact distribution network operators’ approach to infrastructure management and investment?
What are the key challenges faced by the UK’s gas network operators? How are companies innovating to address these challenges?
Are gas network operators set to face tougher price controls in the next spending period?
INTRODUCTION
Definitions
Methodology
Abbreviations
MARKET POSITIONING
Key Points
Overview
National Grid sells majority stake in its remaining four gas distribution networks in 2017
Ofgem regulates gas network operators via price controls
Customers
Suppliers
UK ECONOMY
Overview
Figure 4: Forecast GDP development 2017-23
Figure 5: UK GDP quarterly development, 2004-17
Inflation
Interest rates
House prices
Figure 6: UK House price changes, 2006-2017
Consumer spending
Manufacturing
Figure 7: UK manufacturing, 2014-17
Business investment
Figure 8: UK GFCF, chained volume measures, seasonally adjusted, 2004-17
Imports
Exports
MARKET FACTORS
Key Points
Social Factors
Economic Factors
The UK’s increased reliance on gas imports
Government push for shale gas exploration to reduce reliance on imports
Wholesale gas prices
Figure 9: Average wholesale gas prices, 2006-17
Environmental and Legislative Factors
UK Energy Policy
UK committed to reducing carbon emissions by 80% below 1990 levels by 2050
The government remains committed to tackling climate change despite Brexit vote
Government publishes long-awaited Clean Growth Plan in October 2017
Levy Control Framework
Renewable Energy Obligation (RO)
Feed-in-Tariffs (FITs)
The Renewable Heat Incentive
Contracts for Difference (CfDs)
First CfD auction concludes in February 2015
Second CfD auction winning bids dominated by offshore wind, which has seen a dramatic fall in costs
Next CFD auction scheduled for Spring 2019
Annual Capacity Market auctions are held to help secure the UK’s energy supply
Energy Company Obligation (ECO)
Reforms to promote increased competition in retail energy market
CMA energy market investigation
UK GAS DEMAND AND SUPPLY
Key Points
Overview
UK gas demand in decline
Figure 10: Segmentation of industrial gas consumption, by end use industries, UK, 2012-16
Figure 11: Segmentation of gas consumption, by non-industrial sectors, UK, 2012-16
Figure 12: Segmentation of gas consumption, by non-industrial sectors, 2016
Power Generation
Figure 13: Gas supplied for electricity generation, UK, 2013-17
Figure 14: Gas supplied for electricity generation, UK, 2013-17
Interruptible
Industrial
Figure 15: Gas supplied to the industrial sector, UK, 2013-17
Figure 16: Gas supplied to the industrial sector, UK, 2013-17
Commercial
Figure 17: Gas supplied to the UK commercial sector, 2012-16
Figure 18: Gas supplied to the commercial sector, UK, 2012-16
Domestic
Figure 19: Analysis of the development of gas supplied to the UK domestic sector, 2013-17
Figure 20: Gas supplied to the UK domestic sector, 2013-17
Figure 21: UK installed base of central heating systems, by type of fuel, 1970-14
Regional Demand
Figure 22: Gas sales and customers by region, Great Britain, 2016
Northern Ireland Gas Market
Gas Supply
Figure 23: Total gas supply, UK, 2013-17
Figure 24: Total gas supply, UK, 2013-17
Risks to UK gas supply
GAS TRANSMISSION & DISTRIBUTION CAPITAL EXPENDITURE
Key Points
Capital Expenditure
The Market 2013-17
Figure 25: Total gas transmission and distribution capital expenditure, 2012/13-2016/17
Figure 26: Total gas transmission capital expenditure, 2012/13-16/17
Figure 27: Total gas distribution capital expenditure, 2012/13-2016/17
Figure 28: Total gas transmission and distribution capital expenditure, 2012/13-2016/17
Replacement Expenditure (Repex)
Figure 29: Length of iron gas mains replaced, by distribution network operator, 2012-17
Capital Expenditure by Individual Companies
National Grid Gas
Figure 30: Gas transmission and distribution capital expenditure by National Grid Gas, 2012/13-2016/17
Northern Gas Networks
Figure 31: Gas Distribution Capital Expenditure by Northern Gas Networks, 2012/13-2016/17
Scottish Gas Networks
Figure 32: Gas Distribution Capital Expenditure by Scottish Gas Networks, 2012/13-2016/17
Southern Gas Networks
Figure 33: Gas distribution capital expenditure by Southern Gas Networks, 2012/13-2016/17
Wales and West Utilities
Figure 34: Gas Distribution Capital Expenditure by Wales and West Utilities, 2012/13-2016/17
FORECAST CAPITAL EXPENDITURE
Key Points
Overview
Figure 35: Ofgem’s required expansion of the number of properties to alleviate fuel poverty, 2013-21
Innovation at centre of new price control model for gas distribution and transmission network
Gas network operators to face tougher price controls from 2021
Transmission Network
Figure 36: Annual capital expenditure plans by National Grid Gas Under RIIO-T1, by Category, 2014-2021
Distribution Network
Figure 37: Annual capex plans under RIIO-GD1, by GDN, 2014-2021
Figure 38: Annual repex plans under RIIO-GD1, by GDN, 2014-2021
Figure 39: Forecast total capex and repex during RIIO-GD1, 2013/14-2020/21
Individual Companies
Northern Gas Networks
Figure 40: Northern Gas Networks Capex & Repex, 2014- 17 (Actual) and 2018-21 (Planned)
Figure 41: Northern Gas Networks Capex & Repex Workload, 2014-17 (Actual) and 2018-21 (Planned)
Scotland Gas Networks
Figure 42: Scotland Gas Networks Capex & Repex, 2014-17 (Actual) and 2018-21 (Planned)
Figure 43: Scotland Gas Networks Capex & Repex Workload, 2014-17 (Actual) and 2018-21 (Planned)
Southern Gas Networks
Figure 44: Southern Gas Networks Capex & Repex, 2014-17 (Actual) and 2018-21 (Planned)
Figure 45: Southern Gas Networks Capex & Repex Workload, 2014-17 (Actual) and 2018-21 (Planned)
Wales and West Utilities (WWU)
Figure 46: WWU Capex & Repex, 2014-17 (Actual) and 2018-21 (Planned)
Figure 47: WWU Capex & Repex Workload, 2014-17 (Actual) and 2018-21 (Planned)
Cadent East of England (formerly NGG East of England)
Figure 48: Cadent East of England Capex & Repex, 2014-17 (Actual) and 2018-21 (Planned)
Figure 49: Cadent East of England Capex & Repex Workload, 2014-17 (Actual) and 2018-21 (Planned)
Cadent London (formerly NGG London)
Figure 50: Cadent London Capex & Repex, 2014-17 (Actual) and 2018-21 (Planned)
Figure 51: Cadent London Capex & Repex Workload, 2014-17 (Actual) and 2018-21 (Planned)
Cadent North West (formerly NGG North West)
Figure 52: Cadent North West Capex & Repex, 2014-17 (Actual) and 2018-21 (Planned)
Figure 53: Cadent North West Capex & Repex Workload, 2014-17 (Actual) and 2018-21 (Planned)
Cadent West Midlands (formerly NGG West Midlands)
Figure 54: Cadent West Midlands Capex & Repex, 2014-17 (Actual) and 2018-21 (Planned)
Figure 55: Cadent West Midlands Capex & Repex Workload, 2014-17 (Actual) and 2018-21 (Planned)
STRUCTURE OF THE GAS DISTRIBUTION INDUSTRY
Key Points
Development and Structure of the Gas Industry
Industry structure
Industry development
National Grid Gas sells majority stake in its four UK distribution networks
Figure 56: Structure of the Distribution Network Operators, as of February 2018
Competition in Network Connections
NATIONAL GRID GAS/CADENT GAS
National Grid sells its UK gas distribution businesses
National Grid Gas’ Innovation Strategy
Figure 57: Financial analysis of National Grid Gas, 2013-17
NORTHERN GAS NETWORKS
NGN’ Spending Plans
Innovation
Figure 58: Financial analysis of Northern Gas Networks, 2011-17
SCOTLAND GAS NETWORKS
Innovation
Figure 59: Financial analysis of Scotland Gas Networks, 2013-17
SOUTHERN GAS NETWORKS
Figure 60: Financial analysis of Southern Gas Networks, 2013-17
WALES AND WEST UTILITIES
Figure 61: Financial analysis of Wales & West Utilities, 2012-17
GAS SUPPLY INDUSTRY
Key Points
Recent Retail Market and Industry Developments
Further market reforms on the way following CMA Energy Market Investigation
Energy retail market facing further government intervention, including price cap on SVTs
Breakdown of average gas and electricity bill
Figure 62: Breakdown of average large supplier dual fuel household bill, 2016
Figure 63: Breakdown of average domestic electricity bill, 2016
Figure 64: Breakdown of average domestic gas bill, 2016
Price competition intensified between 2014 and 2016, reflecting falling wholesale costs and more industry players
...but many suppliers hike prices in 2017, citing rising wholesale costs and the cost of delivering government policies
Competition largely focused on cheap fixed tariffs...
... but more than half of households remain on more expensive standard variable tariff - reflecting a two-tier energy market
Figure 65: Average annual bill on SVT versus supplier’s cheapest fixed tariff, by major supplier, September-December 2017
A number of suppliers are scrapping Standard Variable Tariffs in 2018
Domestic switching rates at record high
Figure 66: Number of supplier switches in the domestic gas and electricity markets and share of small suppliers, Great Britain, Q1 2012 - Q4 2017
Figure 67: Number of supplier switches in the domestic gas and electricity markets, Great Britain, 2013 – 17
One in five energy customers now use small or medium suppliers
Figure 68: Domestic gas supply market shares in Great Britain, by company 2014-17
Innovation in tariffs offerings
Energy suppliers are branching out into multi-utility and home services markets
Customer service is a key driver of customer loyalty
Smart Meter Roll-out programme
First-generation (SMETS1) smart meters will 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 will attract new market entrants, including tech firms
Smart meters and rise in small scale renewables and storage to open up opportunities for peer-to-peer trading, which would see consumers bypassing suppliers
Non-domestic retail market trends
CENTRICA/BRITISH GAS TRADING
Recent acquisitions and disposals
Company Strategy
Company performance
Figure 69: Financial analysis of Centrica, 2012-16
Figure 70: Centrica revenue segmental analysis, 2016
British Gas parent Centrica to scrap standard variable tariffs in 2018
Focus on innovative Connected Homes Products
Company Strategy
Company Review and Outlook
Figure 71: Financial analysis of British Gas Trading, 2012-16
EDF ENERGY
Planned new UK power stations
Smart metering programme
Recent price cuts and hikes
Intense competition sees EDF Energy lose more customers in 2016
EDF Energy eyes moves into home services market
Figure 72: Financial analysis of EDF Energy, 2012-16
Figure 73: EDF Energy revenue segmental analysis, 2016
NPOWER
Price cuts announced in early 2016...
... followed by price hike in March 2017
Meridian Energy and Npower launch online energy supplier Powershop
Despite recovery plan and cost-cutting measures Npower was still in a loss-making position in 2017
SSE and Npower in merger talks
Figure 74: Financial analysis of Npower, 2012-16
Figure 75: RWE - UK Generation & Supply revenue segmental analysis, 2016
E.ON ENERGY
E.ON cuts gas price in early 2016....
.. but announces a price hike in March 2017, the first in more than three years
E.ON to scrap SVTs for customers on fixed deal
Company Strategy
Figure 76: Financial analysis of E.ON Energy Solutions, 2012-16
Electricity supply licensees
Gas supply licensees
Generation licensees
Figure 77: E.ON revenue segmental analysis, 2016
SCOTTISHPOWER ENERGY RETAIL
Gas prices cut in early 2016, but dual tariff raised in early 2017
Scottish Power to ditch standard tariffs
Company Performance & Strategy
Figure 78: Financial analysis of ScottishPower Energy Retail, 2012-16
Figure 79: ScottishPower revenue segmental analysis, 2016
SSE
Recent reductions in gas prices for SSE customers
But SSE hikes electricity prices from April 2017
SSE loses more customers in 2017
SSE and Npower in merger talks
Company Strategy and Outlook
Figure 80: Financial analysis of SSE, 2013-17
Figure 81: SSE revenue segmental analysis, 2017
ECOTRICITY GROUP
Company Strategy
Figure 82: Financial analysis of Ecotricity Group, 2013-17
FIRST UTILITY
First Utility diversifies to become multi-utility brand
First Utility acquired by Shell
Figure 83: Financial analysis of First Utility, 2012-16
GOOD ENERGY GROUP
Company Strategy
Figure 84: Financial analysis of Good Energy Group, 2012-16
Figure 85: Turnover analysis of Good Energy Group, by segment, 2012-16
FUTURE GAS DEMAND
Key Points
The Market
Figure 86: Forecast UK gas demand, 2017-42
Figure 87: Forecast UK gas demand, 2017-42
Figure 88: Forecast gas demand, by sector, 2017-2042
Figure 89: Forecast UK gas demand by sector under “slow progression” scenario, 2017-42
Figure 90: Forecast UK gas demand by sector under “two degrees” scenario, 2017-42
Figure 91: Forecast UK gas demand by sector under “steady state” scenario, 2017-42
Figure 92: Forecast UK gas demand by sector under “consumer power” scenario, 2017-42
Power Generation Demand
Figure 93: Forecast power generation installed capacity under “slow progression” scenario, by source, 2017-42
Figure 94: Forecast power generation installed capacity under “two degrees” scenario, by source, 2017-42
Figure 95: Forecast power generation installed capacity under “steady state” scenario, by source, 2017-42
Figure 96: Forecast power generation installed capacity under “consumer power” scenario, by source, 2017-42
Imports
Figure 97: Existing UK gas import infrastructure, as of November 2017
Figure 98: Proposed UK import projects, as of November 2017
Exports
FURTHER SOURCES & CONTACTS
Trade Associations & Regulatory Bodies
Trade Exhibitions
Trade Magazines

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