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Current scenario of Energy Retail utilities market in UK
- 1. Current scenario of Energy Retail utilities market in UK OVERVIEW, KEY TRENDS, CHALLENGES, AND FUTURE OUTLOOK SHAPING THE INDUSTRY LANDSCAPE Presented by: Paras Gupta
- 2. Overview The UK energy retail market is characterized by a diverse mix of players, including major incumbents like British Gas and EON, as well as newer entrants such as Octopus Energy and Bulb. • According to Ofgem, the UK's Office of Gas and Electricity Markets, there were 20 active suppliers in the domestic gas and electricity retail markets as of December 2023. • This consisted of 18 suppliers active in both gas and electricity, 1 in gas and 1 in electricity only. • A continuous decline in number of players from the peak Jul’2018 (70) • In December 2023, Shell was acquired by Octopus Source: https://www.ofgem.gov.uk/retail-market-indicators Category Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Gas 5 5 5 2 2 2 2 1 1 1 1 1 Electricity 3 4 3 1 1 1 1 1 1 1 1 1 Gas and electricity 41 40 36 23 21 21 20 20 19 19 19 18 Total 49 49 44 26 24 24 23 22 21 21 21 20
- 3. Overview (Market Share) The combined market share of the large legacy suppliers was 70% in electricity and 69% in gas. Other large, medium and small suppliers accounted for the remaining 30% and 31% for electricity and gas respectively. • In electric supply market as of Q3 2023,Octopus Energy has 22% market share followed by British Gas (20%) and E.ON (17%) Source: https://www.ofgem.gov.uk/retail-market-indicators • In gas supply market as of Q3 2023, British Gas has a share of 28%, followed by Octopus Energy (22%) and E.ON (14%) The market share of Octopus in both electricity and gas has experienced an increase from 11% in Q4 2022 to 17% in Q1 2023 and from 17% in Q3 2023 to 22% in Q4 2023 following its acquisitions of Bulb and Shell respectively.
- 4. Market Size and Growth •The energy market in the UK has been steadily growing in last few years. •According to Statista, the retail sale of electricity in the UK amounted to approximately £60B (36% increase) in 2022 from £44B in 2021. •Similarly, the retail sale of gas in the UK reached around £47B (80% increase) in 2022 from £26B in 2021. The selling value of electricity for all sectors in the United Kingdom (UK) has historically been higher compared to the selling value of gas. Source: https://www.statista.com/statistics/545396/value-electricity-gas-all-consumers-united-kingdom-uk/#:~:text=In%202022%2C%20the%20selling%20value,to%2046.8%20billion%20British%20pounds.
- 5. Market Trends •Increasing focus on sustainability and decarbonization is driving demand for renewable energy solutions, with wind and solar power gaining prominence. •Since 2000 there has been a substantial increase in the number and capacity of renewable sites and the technology has also been advancing and increasing its capabilities •Advancements in technology are reshaping the energy retail sector, with digital platforms enabling enhanced customer engagement, personalized offerings, and energy management solutions. •According to a report by Mckinsey, more energy retailers are transforming their digital platforms to cut costs and to stay competitive •Consumers expect their energy provider to offer digital services such as online account management and smart home solutions. •Companies like Octopus Energy have embraced digital platforms, offering innovative services like smart meters and real-time energy usage insights. The major market trends are inspired by the shift towards Renewable Energy and the Digital Transformation of the Energy Retail sector Shift towards Renewable Energy Digital Transformation Source: https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/digital-transformations-in-energy-retail-a-shift-toward-advanced-platforms
- 6. Renewable Energy Adoption •Renewable generation totalled a record high 39.9 TWh in Quarter 4 2023, an increase of 4.9 per cent compared to the same period the previous year •Renewable generation reached 135 TWh contributing to a record 47.3 share of total generation, driven by record offshore wind generation Wind generation increase 1.5 per cent to 26.4 TWh, the highest quarterly generation in the recorded time series •Renewables’ share of total generation achieved both an annual record (47.3 per cent) and a quarterly record, which at 51.5 per cent Source: https://assets.publishing.service.gov.uk/media/6604334f91a320001182b0de/Energy_Trends_March_2024.pdf Renewable energy adoption is gaining momentum in the UK. According to the Statistical Release of Mar’24 by the Department for Energy Security & Net Zero, the production from renewable technologies is at record high Electricity generated by fuel type
- 7. Regulatory Environment The UK energy retail market operates under the oversight of regulatory bodies such as Ofgem, which oversee market competition, consumer protection, and energy policy License conditions Regulation set by Ofgem which sets out the standards across many different areas from operations to customer service, that suppliers must adhere to, to continue to operate. Price cap Sets a maximum amount that energy retail suppliers can charge domestic customers on Standard Variable or Default Tariffs. Regulatory initiatives Include the introduction of the Retail Energy Code (REC) and the Smart Metering Implementation Program (SMIP) to drive market efficiency and innovation.
- 8. Competitive Landscape Competition in the UK energy retail market remains intense, with traditional incumbents facing pressure from agile disruptors. Newer entrants like Octopus Energy has gained traction by offering competitive tariffs, innovative products, and superior customer service. British Gas • Established brand with high market recognition. • Diverse product offerings including gas, electricity, and home services. • Extensive customer base and market presence across the UK Octopus Energy • Reputation for competitive pricing and transparent tariffs. • Focus on renewable energy and sustainable practices. • Innovative technology platforms for customer management and energy optimization NPower • Reputation for simplicity, transparency, and green energy. • Agile and customer-centric approach to business operations. • Collaborates with industry partners and stakeholders to drive innovation and market expansion E.ON • Well-known and trusted brand with a strong reputation for reliability and service. • Invests in innovative technologies and digital platforms • Committed to sustainability and environmental responsibility
- 9. Industry Challenges Energy Affordability, Grid Modernization, and Regulatory complexities Energy Affordability Rising energy prices and cost-of-living concerns pose challenges for consumers, prompting calls for greater affordability and support measures. Grid Modernization The transition to renewable energy sources requires investment in grid infrastructure and smart technologies to ensure reliability and efficiency. Regulatory complexities Regulatory barriers to competition that are not in consumers' interest will be removed, but energy being an essential service requires some level of regulation and minimum standards enforcement. While the default tariff cap has been valuable in limiting household energy bills, its short-term focus could hinder innovation and consumer engagement. Source: https://www.techuk.org/resource/energy-retail-market-reform-vision-for-the-future.html#:~:text=The%20energy%20retail%20market%20experienced,continuity%2C%20and%20stabilise%20the%20market.
- 10. Future Outlook The targeted reforms should be designed to achieve four main objectives: Empowering Consumers, Transition to Net Zero, Tackling Fuel Poverty, Strengthening Consumer Protection The UK energy retail market is expected to witness continued growth, driven by increasing energy demand, regulatory developments, and technological innovation. Empowering Consumers: The reforms seek to enhance consumer choice and enable suppliers to succeed by leveraging new technologies and business models. Transition to Net Zero: The government aims to incentivise a switch to low carbon technology, reduce system costs, and protect vulnerable consumers during the transition to a greener energy landscape. Tackling Fuel Poverty: Targeted support will be provided to those in need, addressing fuel poverty in a more focused manner. Strengthening Consumer Protection: The framework for consumer protection will be enhanced to accommodate the dynamic and evolving nature of the future retail market, focusing on customer service and other aspects beyond price protections. Source: https://www.techuk.org/resource/energy-retail-market-reform-vision-for-the-future.html#:~:text=The%20energy%20retail%20market%20experienced,continuity%2C%20and%20stabilise%20the%20market.
- 11. Conclusion The energy suppliers will continue to play a crucial role in the energy system. The current role of licensed suppliers encompasses various functions, industry transformation programs, and support schemes. Financial resilience measures will be in place to ensure suppliers can make long-term investments in innovative technologies. The focus will be on enabling a market where energy companies delivering valuable products and services can thrive. Targeted reforms are necessary to achieve the vision for the retail market, supporting consumers through the global energy crisis and enhancing market resilience. System wide reforms, including smart meter rollout, energy smart appliances, renewable generation, and flexibility, will complement targeted retail market reforms, empowering consumers with a range of tailored products and services aligned with net zero objectives. By embracing innovation, collaboration, and customer-centric strategies, companies can navigate challenges and capitalize on emerging opportunities to shape the future of the energy landscape in the UK
- 13. Thank You “A transition to clean energy is about making an investment in our future.” - Gloria Reuben
- 14. Appendix Suppliers are classified by size as follows: • ‘Large legacy’ includes suppliers which have held a market share of at least 5% in either fuel since privatisation of the electricity and gas sectors. • ‘Other large’ includes suppliers with market share of at least 5% in either fuel, having increased market share from below 5% at the time of privatisation. • ‘Medium’ includes suppliers with market share exceeding 1%, but remaining below 5% in both fuels. • ‘Small’ includes suppliers with market share below 1% in both fuels.