Ofgem has published its state of the market report 2019
Press release
- Publication date
- Industry sector
- Distribution Network
- Offshore Transmission Network
- Supply and Retail Market
- Transmission Network
- Generation and Wholesale Market
- Greenhouse gases fell last year by 2.5%, the smallest reduction since 2012
- Medium and small suppliers now supply around 30% of consumers
- Switching rates increase to 20% and hit a record high
The UK continues to be a global leader in cutting greenhouse gas emissions, according to Ofgem’s annual State of the Market report, but progress is slowing. (1)
Greenhouse gas emissions have fallen by 42% since 1990, more than any other large advanced economy, due largely to the decarbonisation of electricity generation. This has been driven by Government policies, such as the carbon price which penalises coal plants in particular, and the huge growth in wind and solar power. In fact, renewables generated a record 33% of our electricity last year. (2)
Progress is slowing however, with last year seeing the smallest reduction in emissions since 2012 (2.5% this year, down from a 3% fall the previous year).
Transport continued to be the largest single source of carbon emissions, although emissions fell slightly last year (3%), partly down to an increase in the number of alternative fuel vehicles, which now account for 2% of the licenced cars on the road in GB. (3)
In June, the Government passed legislation requiring the UK to reduce carbon emissions to net zero by 2050 following calls from the Committee on Climate Change (CCC). To meet this target, significant investment is required, particularly in renewables, as well as policies aiding the roll-out of new low carbon technologies and supporting innovation to decarbonise how we heat our homes and businesses. (4)
A priority of Ofgem’s new corporate strategy is helping decarbonise the economy at the lowest cost to consumers. Ofgem will set out more details on this early next year. (5)
Separately, competition in Great Britain’s retail energy market continued to develop in 2018-19. Medium suppliers benefitted the most from record switching rates (just over 20% in June 2019, up from 19% the previous year), which swelled their market share by 7 percentage points in electricity and 5 percentage points in gas to over 20% of consumers overall. (6)
They also gained customers who were transferred to them under Ofgem’s safety net after a number of smaller suppliers failed and exited the market.
At the same time, the market dominance of the six larger suppliers continued to weaken as they lost 1.3 million customers and saw market share fall to around 70% of consumers, compared to around 75% the year before. Small suppliers for the first time saw their market share fall to 9% of consumers, down from 10% the year before. (7)
During this period, when shopping around for new deals, more consumers turned to price comparison websites (49%), ‘auto-scanning’ notifications (8%) and auto-switching (2%).
Meanwhile, the number of consumers who said they’d never switched fell to 29% - down from 34% in 2018. (8)
In January Ofgem implemented a cap on the price of default tariffs to protect consumers from overpaying for their energy. (9)
The majority of customers on these deals are with the six larger suppliers who charged at the upper limit of the cap. In contrast, medium and small suppliers priced at £43 and £78 below the cap (January – June 2019). (10)
Price transparency has improved in general for business customers. However microbusinesses still lose out and pay on average twice as much for gas and 30% more for electricity than the average across all business customer segments, often because they are on expensive default tariffs.
Energy prices have a direct impact on the welfare of consumers, leading to rationing and even self-disconnection of energy by customers who cannot afford to pay their bills. Ofgem is publishing its updated Consumer Vulnerability Strategy this Autumn. (11)
Joe Perkins, chief economist at Ofgem, said:
“Ofgem’s latest state of the market report shows the progress made so far to decarbonise the economy but much more needs to be done.
“We want the UK to remain a global leader in bringing down greenhouse gas emissions, and our major objective is to help the country rise to the challenge of cutting emissions to net zero by 2050 at the lowest possible price to consumers.
“As well as protecting consumers in the future, our duty is also to protect those today.
“We will continue to enable competition and innovation which benefits consumers, whilst protecting those who need it, as we help build an energy market which works for all consumers.”
Notes to editors
(1) Ofgem’s State of the Energy Market 2019 report has been published 03-10-19.
(2) Falling carbon intensity can be attributed, in part, to the new record contribution of renewables, which accounted for 33% of all generation in 2018 – up from 29% in 2017.This was primarily driven by wind, solar and bioenergy. A reduced reliance on coal also contributed to the decline, with its share falling from 7% in 2017 to 5% in 2018 (there was little change in the shares of oil and gas). The Government remains committed to ending unabated coal generation in GB by 2025. Without key decarbonisation policies, such as Renewable Obligations Certificates and Carbon Price support, we estimate that between 2010-18 the UK would have emitted an additional 69 million tonnes of carbon each year.
(3) Transport emissions have fallen by 2% from 2010 levels. BEIS (2019)Final UK greenhouse gas emissions national statistics: 1990-2017; BEIS (2019) Provisional UK greenhouse gas emissions national statistics 2018. The number of licensed electric cars in GB increased from 84,000 in 2010 to 592,000 in 2018, DfT Vehicle Licensing Statistics.
(4) The Committee on Climate Change has called for a UK target of net zero greenhouse gases by 2050. It advises that the decarbonisation of heat and electrification of transport need to be expedited to match the progress that has been made in the electricity sector. Ofgem’s work and recommendations towards decarbonisation includes supporting the roll out of electric vehicles through flexible charging reforms; supporting further innovation in heat decarbonisation through our RIIO2 network price controls; developing enabling technologies and platforms for a more flexible electricity generation system, including developing cross-industry principles to set common standards and methods to promote interoperability, and reduce barriers to entry and lower costs. Ofgem’s Future Insights Paper 6 - Flexibility Platforms in electricity markets
(6) The majority of switches continues to be away from the six large suppliers to smaller and medium suppliers, including 40% of total electricity switching between July 2018 and June 2019, stable compared with the preceding year. Most of these customers (25% up from 16% the previous year) moved to medium (especially to Bulb and Octopus), rather than small suppliers (16% down from 24% the previous year), which reversed the pattern observed in previous periods . Around 36% of switches, down from 41%, still happened to and within the six large suppliers, even though they generally offered higher prices compared to other suppliers. Ofgem/ Exoserve data.
The speed and reliability of switching has remained the same over the past few years and needs substantial improvement, largely due to data issues, preventing and deterring some customers from switching. Ofgem’s launched its Faster and More Reliable switching programme this year to improve the switching process.
(7) Since June 2018, the six large suppliers had a net loss as a group of around 1.3 million customers and their combined market share fell by around five percentage points in both gas and electricity, broadly in line with the drop observed in the previous two years. Medium suppliers gained around 1.9 million customers[1], and their combined market share reached above 20%, up by nearly seven percentage points in electricity and five in gas by June 2019, compared to only around two percentage points in the previous two years. Small suppliers’ joint market share declined by around one percentage point to 9% in electricity and remained almost unchanged in gas at 9% between June 2018 and June 2019.
(8) In 2019 Ofgem began measuring use of switching and deal scanning services that consumers can register for online.
(9) Ofgem’s Conditions for Effective Competition, published today, sets out the conditions under which Ofgem would consider lifting the default and prepayment tariff price caps. Effective competition is defined as dynamic and vigorous rivalry between firms to win and retain customers, with no significant barriers to consumers making an informed choice, and which generate good outcomes for most consumers so that they get a fair deal in terms of what matters to them.
(10) Less engaged consumers tend to be on more expensive default tariffs, which have been subject to the default tariff cap since 1 January 2019. The proportion of customer accounts on these tariffs has declined over time from 69% in 2015 to 53% in April 2018. As of April 2019, 53% of electricity customer accounts and 51% of gas accounts, excluding customers on prepayment, were still on these tariffs. Around half of these had been on default tariffs for more than three years, and 87% (gas and electric meter points) on default tariffs were with the six largest suppliers.
(11) For more on suppliers’ performance towards their vulnerable customers see Ofgem’s Vulnerable Consumers in the Energy Market report 2019
Further Information
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