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Electricity Industry - UK - December 2015

EXECUTIVE SUMMARY
The market
Gross capital spending driven by asset replacement and refurbishment activity
Figure 1: UK gross capital expenditure by the electricity distribution network operators, 2010/11-2014/15
Eastern Power Networks (EPN) and WPD East Midlands report highest level of capital expenditure
Figure 2: Total expenditure allowance for RIIO-ED1 in Great Britain, by company, 2015/16-2022/23
Network investment set to fall during current price control period RIIO-ED1 2015-23
Increased focus on the development of smart grids to facilitate the transition to a low-carbon economy
Figure 3: Forecast network investment of the electricity distribution network operators in Great Britain,
2015/16-2022/23
Smaller suppliers making considerable inroads in electricity supply market
Fixed tariffs becoming more popular, but many consumers remain on more expensive standard tariffs
Wholesale costs account for largest proportion of electricity bill
Figure 4: Breakdown of average domestic electricity household bill, 2014
Market factors
DNOs subject to price controls set by industry regulator Ofgem
Decarbonisation of UK economy to increase loads placed on distribution network
Rapid growth in distributed generation due to rise in renewables generation
Renewable Heat Incentive (RHI) promotes take-up of heat pumps
Companies
Electricity distribution industry
Introduction of competition in network connections
Electricity supply industry
What we think
KEY INSIGHTS
What are the key drivers for network investment by electricity distribution network operators
(DNOs) over the coming years?
What are the drivers behind the DNOs’ increased focus on developing smart grids?
What opportunities do smart meters offer for energy suppliers?
How does Ofgem intend to encourage competition for the installation of new connection
assets?
INTRODUCTION
Definitions
Methodology
Abbreviations
MARKET POSITIONING
Great Britain
Northern Ireland
ECONOMY
Overview
Figure 5: UK GDP quarterly development, 2003-15
Figure 6: UK GDP in economic downturns and recoveries since 1979
Inflation
Interest rates
Business investment
Figure 7: UK GFCF 2003-15
MARKET FACTORS
Price controls
Environmental and legislative factors
Climate Change Programme (including Climate Change Levy and Agreement)
Carbon Plan
Carbon Emission Reduction Target (CERT) and Community Energy Saving Programme (CESP)
Energy Company Obligation (ECO)
Electricity Market Reform
Renewables Obligation
RO support closes two years early for large-scale solar developments and one year early for onshore wind
farms
Feed-in Tariffs (FITs)
The Renewable Heat Incentive
Combined Heat and Power
DISTRIBUTION INDUSTRY STRUCTURE
Key points
Industry overview
Figure 8: Ownership of the distribution network operators in the UK, as of November 2015
Regional electricity demand
Figure 9: Electricity sales and customers, by region, Great Britain, 2013
Figure 10: Regional proportional importance of electricity consumed in Great Britain, 2012
Electricity Consumption by end-use sector
Figure 11: Analysis of electricity usage, by type of industry, UK, 2009-14
Figure 12: Analysis of electricity usage, by the commercial sector, 2009-14
Figure 13: Analysis of electricity usage, by the commercial sector, 2014
Scotland
Northern Ireland
ELECTRICITY DISTRIBUTION SECTOR OVERVIEW
Key points
Overview
Figure 14: Distribution network operators in Great Britain, by region, 2015
Size of UK distribution networks
Figure 15: UK distribution networks, 2014/15
ELECTRICITY DISTRIBUTION MARKET TRENDS
Key points
Introduction of competition in network connections
Trends in UK electricity supply
UK facing power capacity crunch
Figure 16: Analysis of electricity supply in the UK, 2010-14
Figure 17: Analysis of electricity supplied in the UK, by type of fuel used in generation, 2010-14
Figure 18: Analysis of electricity supplied in the UK, by type of fuel used in generation, 2014
Smart Grid Development to Support Low Carbon Economy
Renewable energy generation
Figure 19: Renewable electricity generation in the UK, 2010-15
Figure 20: Renewable electricity generation in the UK graph, 2010-15
Distribution price control review
The Low Carbon Network Fund (LCN)
Electricity North West
Northern Powergrid
SP Energy Networks
SSE
UK Power Networks
Western Power Distribution
ELECTRICITY SUPPLY SECTOR OVERVIEW
Key points
Market background
Figure 21: Proportion of domestic electricity customers by supplier type, by region, 2000 and 2015
Figure 22: Number of supplier switches in the domestic gas and electricity markets and share of small
suppliers, Great Britain, Q1 2010-Q2 2015
Figure 23: Number of supplier switches in the domestic gas and electricity markets, Great Britain, January
2010-June 2015
ELECTRICITY SUPPLY MARKET ISSUES
Key points
Reforms promoting increased competition and supplier switching in retail energy market
‘Big six’ suppliers come under fire for charging high prices in 2013
Energy suppliers announce price cuts in 2014 and early 2015, reflecting falling wholesale
costs, cuts to green levies, and increased competition
Breakdown of average gas and electricity bill
Figure 24: Breakdown of average domestic electricity & gas household bill, 2014
Figure 25: Breakdown of average domestic electricity bill, 2014
Smaller suppliers gaining market share
Figure 26: Domestic gas supply market shares in Great Britain, by company 2010-15
Figure 27: Domestic electricity supply market shares in Great Britain, by company 2010-15
Lower prices, customer dissatisfaction with the ‘big six’, and differentiation strategies are
driving the growth of small suppliers
Poor customer service and complaints handling remains an industry-wide issue
CMA Energy Market Investigation
Smart Meter Roll-out programme
Switching rates in the SME sector also set to increase
CAPITAL EXPENDITURE
Key points
Figure 28: UK gross capital expenditure by electricity distribution network operators, 2010/11-2014/15
Figure 29: UK gross capital expenditure by the electricity distribution network operators graph,
2010/11-2014/15
Figure 30: UK gross capital expenditure by the electricity distribution network operators, by company,
2010/11-2014/15
Forecast capital expenditure
Capital expenditure allowance 2010-15
New price control framework based on Revenue = Incentives + Innovation + Outputs effective from
April 2015
Figure 31: Total expenditure allowance for RIIO-ED1 in Great Britain, by company, 2015/16-2022/23
Figure 32: Total expenditure allowance for RIIO-ED1 in Great Britain graph, by company, 2015/16-2022/23
Figure 33: Forecast network investment of the electricity distribution network operators in Great Britain, by
company, 2015/16-2022/23
DNOs
Western Power Distribution
Figure 34: Core activity costs by Western Power Distribution, by type, 2011-15 and 2016-23
Figure 35: Asset replacement expenditure by Western Power Distribution, by type and company, 2016-23
Figure 36: Capital expenditure planned by Western Power Distribution for the West Midlands, by type,
2016-21
Figure 37: Capital expenditure planned by Western Power Distribution for the East Midlands, by type,
2016-21
Figure 38: Capital expenditure planned by Western Power Distribution for South Wales by type, 2016-21
Figure 39: Capital expenditure planned by Western Power Distribution for the South West by type, 2016-21
Figure 40: Activity costs by UK Power Networks, 2011-15 and 2016-23
Figure 41: Activity costs by UK Power Networks graph, 2011-15 and 2016-23
Figure 42: Asset investment by UK Power Networks, by type, 2011-15 and 2016-23
Figure 43: Capital expenditure planned by London Power Networks, by type, 2016-21
Figure 44: Capital expenditure planned by Eastern Power Networks, by type, 2016-21
Figure 45: Capital expenditure planned by South Eastern Power Networks, by type, 2016-21
Figure 46: Activity costs by Northern Powergrid, by type, 2011-15 and 2016-23
Figure 47: Comparison of average annual activity costs by Northern Powergrid, 2011-2015 and 2016-23
Figure 48: Network investment by Northern Powergrid, by type, 2011-15 and 2016-23
Figure 49: Capital expenditure by Northern Powergrid (Northeast), by type, 2011-15
Figure 50: Capital expenditure planned by Northern Powergrid (Northeast), by type, 2016-21
Figure 51: Capital expenditure by Northern Powergrid (Yorkshire), by type, 2011-15
Figure 52: Capital expenditure planned by Northern Powergrid (Yorkshire), by type, 2016-21
Figure 53: Activity costs by SP Energy Networks, 2011-15 and 2016-23
Figure 54: Comparison of average annual activity costs by SP Energy Networks, 2011-15 and 2016-23
Figure 55: Asset replacement expenditure by SP Energy Networks, by asset type, 2016-23
Figure 56: Capital expenditure planned by SP Distribution, by type, 2011-15 and 2016-23
Figure 57: Capital expenditure planned by SP Manweb, by type, 2011-15 and 2016-23
Figure 58: Activity costs by Electricity North West, by type, 2011-15 and 2016-23
Figure 59: Comparison of average annual activity costs by Electricity North West, 2011-15 and 2016-23
Figure 60: Asset investment by Electricity North West, by type, 2011-15 and 2016-23
Figure 61: Planned expenditure by Electricity North West, by type, 2014-21
Figure 62: Core activity costs by Scottish and Southern Energy Power Distribution, by type, 2011-15 and
2016-23
Figure 63: Comparison of average annual activity costs by Southern Energy Power Distribution, 2011-15 and
2016-23
Figure 64: Asset Investment by Scottish and Southern Energy Power distribution, by type, 2011-15 and
2016-23
Figure 65: Capital expenditure planned by Scottish Hydro Energy Power Distribution, by type, 2016-23
Figure 66: Capital expenditure planned by Southern Energy Power Distribution, by type, 2016-23
Northern Ireland Electricity
Figure 67: Capital expenditure by NIE Transmission and Distribution, 2010/11-2014/15
Figure 68: Capital expenditure determination for NIE Transmission and Distribution, 2012/13-2016/17
COMPANY PROFILES INTRODUCTION
Key points
WESTERN POWER DISTRIBUTION
Western Power Distribution (East Midlands)
Figure 69: Financial analysis of Western Power Distribution (East Midlands), 2010-15
Western Power Distribution (West Midlands)
Figure 70: Financial analysis of Western Power Distribution (West Midlands), 2010-15
Western Power Distribution (South West)
Figure 71: Financial analysis of Western Power Distribution (South West) 2011-15
Western Power Distribution (South Wales)
Figure 72: Financial analysis of Western Power Distribution (South Wales) 2011-15
UK POWER NETWORKS
UK Power Networks: Eastern Power Networks
Figure 73: Financial analysis of Eastern Power Networks, 2010-14
UK Power Networks: London Power Networks
Figure 74: Financial analysis of London Power Networks, 2010-14
UK Power Networks: South Eastern Power Networks
Figure 75: Financial analysis of South Eastern Power Networks, 2010-14
NORTHERN POWERGRID
Northern Powergrid (Northeast)
Figure 76: Financial analysis of Northern Powergrid (Northeast), 2010-14
Northern Powergrid (Yorkshire)
Figure 77: Financial analysis of Northern Powergrid (Yorkshire), 2010-14
SP DISTRIBUTION
SP Manweb
Figure 78: Financial analysis of SP Manweb, 2010-14
SP Distribution (South & Central Scotland)
Figure 79: Financial analysis of SP Distribution, 2010-14
SSE
Company strategy and outlook
Figure 80: Financial analysis of SSE, 2011-15
Figure 81: Turnover analysis of SSE, by business segment, 2014-15
Southern Electric Power Distribution
Figure 82: Financial analysis of Southern Electric Power Distribution, 2011-15
Scottish Hydro Electric Power Distribution
Figure 83: Financial analysis of Scottish Hydro Electric Power Distribution, 2011-15
ELECTRICITY NORTH WEST
Figure 84: Financial analysis of Electricity North West, 2011-15
NORTHERN IRELAND ELECTRICITY
Figure 85: Financial analysis of Northern Ireland Electricity, 2010-14
BRITISH GAS TRADING
Figure 86: Financial analysis of British Gas Trading, 2010-14
EDF ENERGY
Figure 87: Financial analysis of EDF Energy, 2010-14
Figure 88: EDF Energy revenue segmental analysis, 2014
RWE NPOWER
Company strategy and outlook
Figure 89: Financial analysis of Npower, 2010-14
Figure 90: RWE – UK revenue segmental analysis, 2014
E.ON ENERGY
Company strategy
Figure 91: Financial analysis of E.ON Energy Solutions, 2010-14
Figure 92: E.ON revenue segmental analysis, 2014
SCOTTISHPOWER ENERGY RETAIL
Company strategy and outlook
Figure 93: Financial analysis of ScottishPower Energy Retail, 2010-14
Figure 94: ScottishPower revenue segmental analysis, 2014
ECOTRICITY GROUP
Company strategy
Figure 95: Financial analysis of Ecotricity Group, 2010-14
FIRST UTILITY
Company strategy and outlook
Figure 96: Financial analysis of First Utility, 2010-14
GOOD ENERGY GROUP
Company strategy
Figure 97: Financial analysis of Good Energy Group, 2010-14
Figure 98: Turnover analysis of Good Energy Group, by segment, 2012-14
FURTHER SOURCES AND CONTACTS
Trade associations and regulatory bodies
Association of Electricity Producers
Energy Networks Association
Energy Industries Council
Energy Retail Association
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)
Trade magazines
Modern Power Systems
Modern Utility Management
Utility Week
Trade exhibitions
Energy4PowerLive 2015
Offshore Europe 2017
edie2016
UK B2B
Trade research
Informal
Formal
Desk research
Consumer research
Sampling and weighting
Definitions
Qualitative Research
Further Analysis
Statistical forecasting

Electricity Industry - UK - December 2015

“Widespread smart meter deployment should allow energy suppliers to offer more innovative and tailored tariffs and products. The technology will make it possible for suppliers to offer “time‑of‑use tariffs” to customers, charging little or nothing for power at off‑peak times, such as the weekend, and higher prices on high‑demand weekdays.”

– Claudia Preedy, B2B Analyst

This report will explore the following key questions facing the UK electricity supply and distribution industry:

What are the key drivers for network investment in the electricity distribution sector?
How do legislative changes affect the industry?
What challenges does the transition to a low carbon economy present to distribution network operators (DNOs)?
What are the expenditure plans of individual DNOs for the next price control period RIIO-ED1?
What are the major challenges facing the electricity supply sector?


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