Britain’s energy market in for shakeup

New network and retail options are in prospect for the British energy market.
Published: Fri 10 Nov 2017

The British energy market faces changes on both the network and retail fronts. Vattenfall is entering the former and the so-called ‘Big Six’ is set to become ‘Big Five’ with a proposed merger of npower with SSE’s retail business.

Vattenfall expands business

Vattenfall has been steadily expanding its operations in the UK over the past decade. Initially this has focused on renewable generation, starting with 90MW of wind in 2008 and growing to 1GW currently to make the company one of the country’s biggest producers of wind power.

Vattenfall also has started to add storage to its wind operations, with a 22MW battery facility under development at the Pen y Cymoedd site in south Wales, which will provide enhanced frequency response service to the national grid.

Earlier this year, Vattenfall acquired the independent energy retailer iSupply Energy to enter the retail market, with a renewable offering named FRESH – standing for Flexible, Renewable Electricity, Supplied Honestly – for large business consumers.

And the latest activity is to venture into distribution network operator (DNO) territory, with the formation of a new unit, named Vattenfall Networks, to own and operate electricity networks. Following granting of an operating licence from Ofgem on 1 November, the company expects to start operations in 2018.

“This is another important step for Vattenfall in the UK which is an interesting market where we see good opportunities to further grow with our climate smart energy solutions,” says Magnus Hall, Vattenfall’s president and CEO, in a statement.

Vattenfall Networks, which is unbundled from the existing UK sales and generation business, aims at growing organically as an independent DNO. The new unit will build and operate new connections to the existing network in new residential, retail or industrial areas, according to the statement.

“Vattenfall will offer integrated and climate smart energy solutions to future customers in Britain,” promises Head of Business Area Distribution, Annika Viklund.

The operation is headed by Stewart Dawson, who has over 30 years’ experience in the British energy sector at companies including UK Power Networks and EDF Energy.

npower and SSE merger

Of bigger potential impact, however, is the proposed merger between innogy owned npower and SSE’s household energy and energy services business.

The proposal is to form a major, independent retail energy company, not controlled by either innogy or SSE, according to an innogy statement. innogy will hold a minority 34.4% stake, while SSE plans to demerge its 65.6% stake to its shareholders. 

Services offered by the combined company will include not only electricity and gas supply, but also a wide range of energy solutions including energy-related home services as well as business solutions.

In the statement innogy CEO Peter Terium comments on a redefinition of the company’s involvement with the GB retail energy market – “a logical step in our strategy to review our market engagements if we aren’t able to reach a leading position in them” – and he references “the competitive landscape and the uncertain political environment” for energy retailers.

Market shake up

The proposed merger has to go through various approvals, which are expected to take a year or even into Q1 of 2019 to complete.

The question is in a market which is focussed on competition, and regardless of shareholder approvals, will the deal be permitted by the competition authority?

The combined company would have over 13m customers, which is about one-quarter of the UK market and about one-third of that held by the six biggest companies. Exceeding British Gas’s 11m customers, it would make the new company the largest supplier in the country.

In popular press reports both companies have insisted that the merger would be “good for competition” and they also deny it has been prompted by a proposed bill to cap energy prices, which could impact on supplier profits.

Time will tell but if the merger is approved then it is likely others could follow. If it isn’t it should still shake the market as an opportunity for the smaller independents to look to increasing their customer bases as well as for the bigger companies to move more aggressively towards their future with other product and service revenue generation opportunities.

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