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| KEY NOTE Utilities : October 2004 |
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This report covers: utilities, electricity, gas, water, sewerage, water use, energy, terrorist threats, wind farms, and, local politics, climate change, envitonmental issues, increasing utility costs, oil and gas prices, future water price increases, rising domestic gas prices, power cuts, sewerage networks,
Companies covered include: AWG, Centrica, EDF Energy, National Grid Transco, Powergen, UK, RWE Innogy, Scottish Power, Severn Trent, Thames Water Utilities, United Utilities,
EXECUTIVE SUMMARY
| Executive Summary |
| This report analyses the UK utilities market for electricity, gas and water services (water supply and sewerage). As well as presenting financial, power and water-service data, the report also includes the results from consumer research undertaken on behalf of Key Note into attitudes towards the purchase and marketing of utility services. |
| The largest sector in terms of turnover is electricity, due to the expensive process of converting primary fuel such as coal or gas into electrical power. Gas forms the second-largest sector with its major markets being direct use for heating and, increasingly, electricity generation. Water services is the smallest sector. |
| The opening up of the UK market for electricity and gas supply to competition means there is a range of companies offering both fuels. Most of these companies originated in the electricity industry, but some have their roots in the gas industry. Some electricity and gas suppliers are marketing organisations with no history of direct involvement in the electricity or gas sectors. Suppliers of electricity and gas are now considered to be energy companies rather than suppliers of one fuel or the other. The UK energy market includes major players that are subsidiaries of very large French and German companies. |
| Regulation in the electricity and gas markets is carried out through the Office of Gas and Electricity Markets (Ofgem) to facilitate competition among supply companies, operate a licensing system, monitor prices, provide technical advice and address consumer issues. Energywatch, an independent body, provides help and advice on gas and electricity. |
| The UK electricity and gas sectors face fundamental challenges regarding security of supply and rising prices. Output from the UK's offshore gas industry will decrease and evidence of this decline is now emerging. With limited alternative environmentally acceptable primary fuels, the UK will import more of its gas requirements. Much of this gas will derive from regions that would not normally be preferred trade partners for energy supplies for the UK on account of differing political and cultural outlooks and remote distance from the UK. |
| The UK water-services market does not yet have open competition as in the case of electricity and gas markets. However, plans are being discussed for large industrial customers to be able to choose their water supplier from 2005. The UK water-services market is regulated through the Office of Water Services (Ofwat), with Water Voice providing a mechanism for help and advice for consumers. Structurally the water-service industry is operated by commercial companies, some providing water-only services and others providing water supply and sewerage services. |
| There has been a change in direction of the type of players in the UK utility market during the past few years. Following the opening of the electricity and gas markets from the mid-1990s, some of the major players adopted a broad position with activities in electricity, gas, telecommunications, water and waste management. However, there has been a general retreat from this position to the current one in which most players focus on either energy or water. |
| Due to concerns about the security of supplies, environmental issues, terrorist attacks and rising prices, the utility sector now has a high profile both at consumer and government level. Key Note forecasts that the rise in household final consumption expenditure on UK utilities between 2004 and 2008 will be approaching 20%. |
TABLE OF CONTENTS
| Executive Summary |
| 1. Introduction |
| BACKGROUND |
| DEFINITIONS |
| Electricity |
| Production and Distribution of Electricity Section E 40 |
| Production of Electricity (40.11) |
| Transmission of Electricity (40.12) |
| Distribution and Trade of Electricity (40.13) |
| Gas |
| Distribution and Trade of Gaseous Fuels Through Mains (40.22) |
| Water |
| Collection, Purification and Distribution of Water (41.00) |
| Sewerage |
| Collection and Treatment of Sewage (90.01) |
| 2. Strategic Overview |
| MARKET DYNAMICS AND SEGMENTATION |
| Table 1: UK Utilities — Main Market Sectors by Final Consumption |
| Table 2: Total Turnover of UK Utilities at Current Prices (£bn), 1999-2003 |
| Table 3: Household Final Consumption Expenditure on UK Utilities at Current Prices (£bn), 1999-2003 |
| COMPETITIVE STRUCTURE |
| ADVERTISING |
| Table 4: Main Media Advertising Expenditure on Utilities for Business and Residential Customers (£000), Year Ending June 2004 |
| THE CONSUMER |
| MARKET FORECASTS |
| Table 5: Forecast Household Final Consumption Expenditure on UK Utilities at Current Prices (£bn), 2004-2008 |
| 3. Energy Sector Overview |
| BACKGROUND |
| Table 6: Final Energy Consumption in the UK by Fuel Type (000 toe), 2001-2003 |
| Table 7: Final Energy Consumption in the UK by Sector (000 toe), 2000-2003 |
| MARKET SIZE |
| Table 8: The UK Energy Market — Total Turnover and Total Household Expenditure at Current Prices (£bn), 1999-2003 |
| CONSUMER TRENDS |
| MARKETING ACTIVITY |
| ADVERTISING |
| Main Media Advertising Expenditure |
| Table 9: Main Media Advertising Expenditure by UK Energy Utility Companies to Residential Customers (£000), Year Ending June 2004 |
| 4. Electricity |
| BACKGROUND |
| Generation |
| Transmission |
| Distribution |
| Supply |
| Legislation and Regulation |
| Market Structure |
| MARKET SIZE |
| Table 10: The UK Electricity Sector — Total Turnover and Total Household Expenditure on Electricity at Current Prices (£bn), 1999-2003 |
| Table 11: Total Household Expenditure on Electricity at Current and Constant 2000 Prices (£m), 1993-2003 |
| Table 12: Retail Price Index Fuel Component for Electricity (index 1990=100), 1993-2003 |
| CONSUMER TRENDS |
| MARKETING ACTIVITY |
| ADVERTISING |
| 5. Gas |
| BACKGROUND |
| Suppliers |
| Legislation and Regulation |
| MARKET SIZE |
| Table 13: The UK Gas Sector — Total Turnover and Total Household Expenditure on Gas at Current Prices (£bn), 1999-2003 |
| Table 14: Total Household Expenditure on Gas at Current and Constant 2000 Prices (£m), 1993-2003 |
| Table 15: Retail Price Index Fuel Component for Gas (index 1990=100), 1993-2003 |
| CONSUMER TRENDS |
| MARKETING ACTIVITY |
| ADVERTISING |
| 6. Water and Sewerage Services |
| BACKGROUND |
| Legislation and Regulation |
| Market Structure |
| MARKET SIZE |
| Table 16: The UK Water and Sewerage Sector — Turnover and Household Final Consumption Expenditure at Current Prices (£bn), 1999-2003 |
| Table 17: Household Final Consumption Expenditure on UK Water Services at Current Prices (£m), 1999-2003 |
| Table 18: Household Final Consumption Expenditure on UK Water Services Reference Year 2000 (£m), 1999-2003 |
| Table 19: Annual Percentage Change in Household Final Consumption Expenditure on UK Water Services Sector at Current and Reference 2000 Prices, 2000-2003 |
| CONSUMER TRENDS |
| MARKETING ACTIVITY |
| ADVERTISING |
| 7. An International Perspective |
| MARKET DEVELOPMENTS |
| Electricity Demand |
| Table 20: Total Electricity Demand in the EU (TWh), 2002 and 2003 |
| Gas Consumption |
| Table 21: Inland Sales of Natural Gas in Selected EU Countries (petajoules), 2003 |
| Water Use |
| Table 22: Water Use in Selected EU Countries (million cubic metres), 1996/1997/1998/1999/2000/2001 |
| COMPETITIVE ENVIRONMENT |
| Energy |
| Water |
| CONSUMER BEHAVIOUR |
| Table 23: EU 15 Domestic Median Electricity Prices (pence per KWh), 2000-2003 |
| Table 24: EU 15 Domestic Median Gas Prices (pence per KWh), 2000-2003 |
| 8. PEST Analysis |
| POLITICAL FACTORS |
| Future Energy Sources |
| Terrorist Threats |
| Wind Farms and Local Politics |
| Climate Change |
| Environmental Issues |
| ECONOMIC FACTORS |
| Increasing Utility Costs |
| Oil and Gas Prices |
| Future Water Price Increases |
| SOCIAL FACTORS |
| Rising Domestic Gas Prices |
| Power Cuts |
| Sewerage Networks |
| TECHNOLOGICAL FACTORS |
| Water-Service Infrastructure |
| Electricity and Gas Infrastructure |
| Renewable Energy |
| Energy and Water Conservation |
| Remote Metering |
| 9. Consumer Dynamics |
| OVERVIEW |
| Table 25: Summary of Responses (% of respondents), 2004 |
| SWITCHING SUPPLIER |
| "I Have Changed My Electricity Supplier" |
| "I Have Changed My Gas Supplier" |
| Table 26: Experience of Switching Suppliers (% of respondents), 2004 |
| "A Single Company Now Supplies Me With Both Gas And Electricity" |
| Table 27: Experience of Switching Suppliers (% of respondents), 2004 |
| DIFFICULTIES IN SWITCHING SUPPLIER |
| "I Have Experienced Difficulties In Transferring My Electricity Or Gas Account From One Supplier To Another" |
| "I Have Experienced Difficulties In Transferring My Combined Electricity And Gas Account To Another Company Also Supplying Electricity And Gas" |
| Table 28: Difficulties in Switching Suppliers (% of respondents), 2004 |
| "The Difficulties I Have Experienced In Switching Electricity And/Or Gas Supplier Would Lessen My Willingness To Transfer To Another Supplier Again In The Future" |
| Table 29: Past Difficulties Affecting Willingness to Switch Supplier (% of respondents), 2004 |
| SATISFACTION WITH BILLING |
| "I Have Experienced Errors, Including Delays, In My Gas And/Or Electricity Bills" |
| "I Have Experienced Errors, Including Delays, In Receiving My Water And/Or Sewerage Bills" |
| Table 30: Satisfaction with Billing (% of respondents), 2004 |
| MARKETING OF ELECTRICITY AND GAS |
| "I Receive An Unwelcome Amount Of Sales Literature, Phone Calls Or Personal Approaches From Gas And/Or Electricity Companies Trying To Persuade Me To Change Supplier" |
| Table 31: Marketing of Electricity and Gas (% of respondents), 2004 |
| PREFERRED METHOD OF PAYMENT OF UTILITY BILLS |
| "I Prefer To Pay My Electricity/Gas/Water/Sewerage Bills By Cash Or Cheque" |
| "I Prefer To Pay My Electricity/Gas/Water/Sewerage Bills By Standing Order/Direct Debit" |
| Table 32: Preference for Paying Utility Bills by Cash or Cheque, or by Standing Order (% of respondents), 2004 |
| "I Prefer To Pay My Electricity/Gas/Water/Sewerage Bills Online" |
| Table 33: Preference for Paying Utility Bills Online (% of respondents), 2004 |
| PREFERRED TYPE OF UTILITY SUPPLIER |
| "I Would Prefer To Have Separate Suppliers For Gas/Electricity/Water/Sewerage" |
| "I Would Prefer To Have A Combined Supplier For Electricity And Gas" |
| Table 34: Preference for a Separate Supplier of all Utilities and for a Combined Electricity and Gas Supplier (% of respondents), 2004 |
| "I Would Prefer To Have A Combined Supplier For Gas/Electricity/Water And Sewerage" |
| Table 35: Preference for a Combined Supplier for all Utilities (% of respondents), 2004 |
| 10. Company Profiles |
| AWG PLC |
| Company Strategy |
| Product and Brand Development |
| Market Development |
| Strengths and Weaknesses |
| Distribution |
| Profitability |
| Future Company Developments |
| CENTRICA PLC |
| Corporate Strategy |
| Product and Brand Development |
| Market Development |
| Strengths and Weaknesses |
| Advertising |
| Distribution |
| Profitability |
| Future Company Developments |
| EDF ENERGY PLC |
| Corporate Strategy |
| Product and Brand Development |
| Market Development |
| Strengths and Weaknesses |
| Advertising |
| Distribution |
| Profitability |
| Future Company Developments |
| NATIONAL GRID TRANSCO PLC |
| Corporate Strategy |
| Product and Brand Development |
| Market Development |
| Strengths and Weaknesses |
| Distribution |
| Profitability |
| Future Company Developments |
| POWERGEN UK PLC (NOW E.ON UK PLC) |
| Corporate Strategy |
| Product and Brand Development |
| Market Development |
| Strengths and Weaknesses |
| Advertising |
| Distribution |
| Profitability |
| Future Company Developments |
| RWE INNOGY PLC (NOW RWE NPOWER PLC) |
| Corporate Strategy |
| Product and Brand Development |
| Market Development |
| Strengths and Weaknesses |
| Advertising |
| Distribution |
| Profitability |
| Future Company Developments |
| SCOTTISH POWER UK PLC |
| Corporate Strategy |
| Product and Brand Development |
| Market Development |
| Strengths and Weaknesses |
| Advertising |
| Distribution |
| Profitability |
| Future Company Developments |
| SEVERN TRENT PLC |
| Corporate Strategy |
| Product and Brand Development |
| Market Development |
| Strengths and Weaknesses |
| Distribution |
| Profitability |
| Future Company Developments |
| THAMES WATER UTILITIES LTD |
| Corporate Strategy |
| Product and Brand Development |
| Market Development |
| Strengths and Weaknesses |
| Distribution |
| Profitability |
| Future Company Developments |
| UNITED UTILITIES PLC |
| Corporate Strategy |
| Product and Brand Development |
| Market Development |
| Strengths and Weaknesses |
| Advertising |
| Distribution |
| Profitability |
| Future Company Development |
| 11. The Future |
| INCREASING IMPORTANCE OF UTILITIES |
| ENVIRONMENTAL ISSUES |
| ELECTRICITY |
| GAS |
| WATER |
| Forecasts |
| Table 36: Forecast Household Final Consumption Expenditure on UK Utilities at Current Prices (£bn), 2004-2008 |
| 12. Further Sources |
| Associations |
| General Sources |
| Government Publications |
| Other Sources |
| Bonnier Information Sources |
Text © 2004 Key Note
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Last updated by Amanda Porteous November 2004
