UK Mass Market Energy Retail 2005 Review

Table of Contents

• CHAPTER 1 EXECUTIVE SUMMARY
  • 2005 has proved challenging as suppliers and regulators deal simultaneously with volatility and environmental issues
  • 2005 was less eventful than previous years for the residential sector - Centrica made the headlines whilst SSE made the running
  • Wholesale markets, particularly for gas, were again both unpredictable and high, these issues were compounded by security of supply concerns
  • On the regulation front, BETTA brought Scotland into the fold and utilities were forced to decide about their thermal plants under LCPD
• CHAPTER 2 CORPORATE MOVERS
  • 2005 has proved challenging as suppliers and regulators deal simultaneously with volatility and environmental issues
  • Centrica sold OneTel, hastening the death of the multi-utility
  • ScottishPower sold its struggling US division, thus becoming a takeover target itself, but rejected the only official bid
  • EDF Energy spent most of the year under the shadow of its parent company IPO that was delayed a number of times
  • E.ON Energy spent much of the year in acquisition mode, successfully buying Economy Power.. But not managing to buy ScottishPower
  • RWE npower organically increased its supply volumes over 2005 but at a large financial cost
  • SSE decided to install flue gas desulphurization equipment in its coal power plants to allow them to continue operation past 2008
• CHAPTER 3 RESIDENTIAL RETAIL
  • 2005 was less eventful than previous years for the residential sector - Centrica made the headlines whilst SSE made the running
  • Centrica managed to stem its losses in 2005 by reducing its retail margin and through heavy marketing of fixed price products
  • Gross switching fell despite price rises and high visibility advertising campaigns
  • Annual bills have continued to increase dramatically over 2005 as suppliers followed Centrica's lead in recovering wholesale costs
  • In 2005, as suppliers increased tariffs, capped/fixed energy offers managed to secure a significant presence in the market
  • The first round of the EEC was successfully completed, but the same ends could arguably have been achieved with less fuss
  • Negative advertising has exacerbated the public's low esteem of energy utilities
• CHAPTER 4 MARKET FUNDAMENTALS
  • Wholesale markets, particularly for gas, were again both unpredictable and high, these issues were compounded by security of supply concerns
  • UK energy policy faces an unfamiliar challenge as traditional supplies of energy begin to tail off while demand continues to increase
  • As the argument shifts from just reducing carbon emissions to also include security of supply, Blair puts nuclear power back on the agenda.
  • The decline of nuclear generating capacity in the UK forces major investment decisions to be made over alternatives in the next few years
  • Whilst all utilities are united by a need to reduce wholesale market exposure, their methods of achieving this aim differ
  • Wholesale energy markets in the UK have shown high prices and volatility once again in 2005, but these have not been matched in the EU
• CHAPTER 5 REGULATION
  • On the regulation front, BETTA brought Scotland into the fold and utilities were forced to decide about their thermal plants under LCPD
  • BETTA brought Scotland into a GB-wide wholesale market; RWE npower intends to take advantage and SSE looks invulnerable
  • Most of the largest coal power plants in the UK have opted in to the EU LCPD by planning to install FGD, however few oil fired power stations will participate
  • Ofgem, the DTI and the FSA have all investigated the high prices and volatility in the wholesale gas market of recent years without reaching any satisfactory conclusions
• CHAPTER 6 APPENDIX
  • SPP writing team
  • How to contact experts in your industry
  • List of Figures
    • Figure 1: ScottishPower share price 2005
    • Figure 2: E.ON's share of power supply volumes across Europe
    • Figure 3: Total energy volume for the top four suppliers
    • Figure 4: Market share movements 2004-2005
    • Figure 5: Gross electricity and gas switching: Nov 03 to Nov 05
    • Figure 6: Annual bills by supplier for Tier1-2 dual fuel customer, Jan 2003-Dec 2005
    • Figure 7: Increase in capped/fixed customers against wholesale energy prices (BFEN0115)
    • Figure 8: UK Primary Energy Balance
    • Figure 9: UK Gas Import infrastructure and projected demand growth
    • Figure 10: UK Nuclear Power Capacity
    • Figure 11: Strategies to reduce wholesale market exposure
    • Figure 12: Month Ahead power and gas prices at European and UK trading hubs, 2005