UK B2B 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
  • The MEU year has seen an increase in the specialisation of suppliers as they focus on their target sectors of the B2B market
  • Churn has continued to decline within SME retail as price and service levels continue to level out
  • 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
  • BE has turned around its financial performance, from the point of collapse, on the back of rising wholesale prices
  • 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
  • GDF has managed to renew most of its initial I&C power customers, a strong vote of confidence in its flexible power offering
  • Gazprom has bold plans for expanding its exports to Western Europe, including to the UK where it believes that it can supply 10% of the market
  • DRAX listed on the London Stock Exchange after turning down three bids from private equity consortiums, raising more money in the process
  • 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
  • Elf Business Energy maintained its position as the UK's largest B2B gas retailer, however it has agreed to sell 13,000 sites to Centrica
• CHAPTER 3 MEU RETAIL
  • The MEU year has seen an increase in the specialisation of suppliers as they focus on their target sectors of the B2B market
  • RWE npower stands out in MEU power retail, gaining significant market share on the basis of a strong flexible offering
  • Elf Business Energy retained its place as the largest gas supplier in the UK, however many of the largest sites are moving to specialist suppliers
  • The B2B market is a carve up between a few main suppliers. 2005 has seen little market share change, as power has been stable and gas has yet to be shaken up by the UK's import status.
  • BE remains the clear leader in power Customer Satisfaction, although a remarkable improvement from BGB lifts it among the leaders
  • BGB stands out from other suppliers, both in year-on-year improvement as well as taking the leading position in gas CSat from SGD
  • British Gas Business has made a notable improvement in the Satisfaction levels within both its gas and power customer base
  • In a climate of high and volatile prices, energy buyers are increasingly turning to third parties for market information and purchasing assistance
  • Flexible contracts are now established in both gas and power, through a select group of larger buyers who are using them to minimise risk
  • Evidence is mounting of the importance of brand in MEU retail with 2005 witnessing the launch of British Gas Business
• CHAPTER 4 SME RETAIL
  • Churn has continued to decline within SME retail as price and service levels continue to level out
  • In 2005, the SME sector has moved into a period of stability after new entrant activity subsided in 2004.
  • New entrants and Centrica are losing their grip on the SME electricity market as PES suppliers have gained share organically and acquisitively
  • Contracts drive switching, not loyalty; but after the sector's first complete cycle of contracts, renewal rates increased in 2005
• CHAPTER 5 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 6 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 7 APPENDIX
  • SPP writing team
  • How to contact experts in your industry
  • List of Figures
    • Figure 1: DTI Wholesale Power Price Index (1997 - 2005)
    • Figure 2: ScottishPower share price 2005
    • Figure 3: Proportion of power customers and volume contracting flexibly by supplier
    • Figure 4: The North European gas pipeline is a key element of Gazprom's strategy for Western Europe
    • Figure 5: The 4GW station has the largest flue gas desulphurisation plant in the world
    • Figure 6: E.ON's share of power supply volumes across Europe
    • Figure 7: Total energy volume for the top four suppliers
    • Figure 8: Average percentage of decision based upon non-price reasons when renewing gas suppliers, 2005
    • Figure 9: Total MEU Power Volume by Supplier
    • Figure 10: Total MEU Gas Volume by Supplier
    • Figure 11: Power Customer Satisfaction, 2004-2005
    • Figure 12: Gas Customer Satisfaction, 2004-2005
    • Figure 13: Share of suppliers' volume by third party involvement, power (excluding lead buyers)
    • Figure 14: Flexible contracts and volume by power supplier
    • Figure 15: Flexible contracts and volume by gas supplier
    • Figure 16: Power Customer Satisfaction, 2004-2005
    • Figure 17: Gas Customer Satisfaction, 2004-2005
    • Figure 18: Split of SMEs classed, dormant, switcher or winback, 2003-2005
    • Figure 19: The acquisition of Economy Power by E.ON means that the majority of entrants that exploited low wholesale power prices have left the market
    • Figure 20: Movement of retained, (dormant) SMEs to entrants then PES suppliers 2003-2005
    • Figure 21: What happened the last time you selected a supplier? (Excludes those that have never switched)
    • Figure 22: UK Primary Energy Balance
    • Figure 23: UK Gas Import infrastructure and projected demand growth
    • Figure 24: UK Nuclear Power Capacity
    • Figure 25: Strategies to reduce wholesale market exposure
    • Figure 26: Month Ahead power and gas prices at European and UK trading hubs, 2005