As we take our first steps into 2021, we continue to look back at the biggest developments in the UK energy markets in 2020, setting us up for the significant year ahead.
The mergers and exits from the supply market that were seen in 2019 continued into 2020 and led to the end of the Big Six. This was due to the E.ON/npower and OVO/SSE consolidations. Amongst the exits, some suppliers experienced growth and consolidated their positions through organic growth and acquisition. We even saw Ofgem with a change in terminology to define suppliers with new classes of ‘large’, ‘large legacy’, ‘medium’ and ‘small’.
Along with the end of the Big Six, 2020 saw the exit of two of the three local authority backed fully licensed suppliers Bristol Energy and Robin Hood, which held 0.3% and 0.2% of the market share respectively, exited the market. This had wider implications than the direct customer base, with a reduction in the number of white labels entering the market.
The feared impact of COVID-19 on consumers’ ability to pay their bills led to the introduction of the Network Charge Deferral scheme. This mandated network companies to provide relief to cash flow-constrained suppliers and shippers by enabling them to defer up to three months of charges relating to gas transportation, electricity distribution and electricity transmission.
The virus also impacted supplier switching, with a drop off in face-to-face sales leading to switching rates falling in the domestic market. But, when switching did occur, it was to tariffs presented by their suppliers as green, with 50% of customers switching to them for the first time. Ofgem also proposed to adjust the default tariff cap for increased supplier bad debt due to COVID-19.
It was decided that the default tariff cap would continue. It came into force on 1 January 2019 and was initially in place until the end of 2020, but can be extended up to the end of 2023 at the latest. In its first review in August, Ofgem concluded that the conditions were not yet in place and recommended retaining the cap for 2021. Also, in August, Ofgem announced that the default tariff cap would protect prepayment meter customers after the charge restriction put in place by the Competition & Markets Authority expired at the end of 2020.
Other responses from the regulator at this time enabled networks and suppliers and National Grid ESO to prioritise their activities. Ofgem set out what it deemed high priority and must be delivered, such as focusing on ensuring that customers’ needs – particularly vulnerable customers – are met, and which could be delayed – this was an “enabling framework for regulatory flexibility”.
Ofgem also issued the policy proposals arising from its Microbusiness Strategic Review for consultation on 29 July. These build on its initial consultation from May 2019 plus data collected from suppliers and looks to address several key issues faced by microbusinesses in the retail energy market. Many of the proposals continued the work of previous initiatives undertaken by Ofgem and the Competition and Markets Authority.
While consolidation has occurred in the GB market, some players have expanded internationally. In June 2020, Bulb announced that it would be expanding its energy offering into France, Spain and Texas and plans to provide “green energy at significantly lower cost than the typical bill in these countries”. It confirmed its launch into Spain in July, and Texas in September. Octopus Energy entered the US market via the acquisition of Evolve Energy for $5mn in September. This followed moves into Australia in April 2019 and Germany in September 2019. Social Energy has now officially begun sales across Australia, after a soft launch in Melbourne last year and OVO Energy’s Kaluza opened a “new tech hub” in Lisbon.
New services and products
Amid this backdrop, suppliers were looking at ways to improve efficiency and offer new tariffs to customers. E.ON UK launched the E.ONNext business in partnership with Octopus Energy’s Kraken and began customer migration to the new platform. Centrica launched its online-only supply platform BG evolve with ENSEK. Kraken and ENSEK provided systems for Good Energy’s domestic and non-domestic supply businesses. Octopus Energy acquired Upside Energy to add energy device management to Kraken’s capabilities.
When it came to tailoring tariffs to net zero technologies, we saw Shell Energy’s solar tariff generate customer credits through the summer. Good Energy’s heat pump tariff included lower rates over seasons with high heat pump usage and, prior to exiting the market, Tonik EV Charge & Home offered time of use pricing for the charge point, not the house.
The flexible market also began to open up to customers. The first domestic DSO flexibility service, sustain-H, was launched by Western Power Distribution. Social Energy also won the first ever fully domestic weekly Firm Frequency Response contract and Ev.energy won the first commercial flexibility tender using a portfolio of electric vehicles (EVs) with UK Power Networks. In another first, residents moved into houses as part of the FLATLINE flexibility demonstration project, providing fixed level monthly bills for power, heat and related services. This is the first demonstration project of energy as a service.
More EV sales than ever
We saw substantial change in the EV market during 2020. In the raft of policy announcements at the end of 2020, we saw the internal combustion engine vehicle new sales ban target brought forward by 10 years to 2030. A pathway to support this transition has not yet been detailed, so we await the Transport Decarbonisation Strategy due out this year.
Last year proved to be a tough sales environment, but policy changes in April changing the tax regime for fleet vehicles and more models being available led to a record number (over 21,000) of EVs being sold in September. Overall, 2020 had more sales than 2018 and 2019 combined. COVID-19 did impact on charge point roll out but 2020 did see some big commitments from car manufacturers with lots of investment going into EVs and particularly battery EVs.
Where 2020 saw further changes to the supply market, 2021 will see even more with a raft of consultations expected on its governance. A raft of consultations and calls for evidence will take place, all of which we will cover in the Daily Bulletin and Energy Spectrum.
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