英国能源市场-英

Research

Briefing23October2023ByIonaStewartIntroduction

to

the

domesticenergy

marketSummary123Howisthedomestic

energymarketstructured?UnderstandingenergybillsCurrentchallengesin

thesupplymarketcommonslibrary.parliament.ukNumber9768Introductionto

the

domesticenergymarketImage

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IfyouhavegeneralquestionsabouttheworkoftheHouseofCommonsemailhcenquiries@parliament.uk.2CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketContentsSummary6Howisthedomesticenergymarketstructured?Howandwhereisenergygenerated?Howisenergytransported?688Whosuppliesenergytohouseholds?Whogovernstheenergymarket?Howareenergybillscalculated?EnergypricecapandEnergyPriceGuaranteeWhataffectsthecostof

anenergybill?Whydoesthepriceofgasdrive

electricityprices?Whatarethecurrentchallengesinsupplyingenergy?Wholesalepricesrises88999999Lossofcompetition101010FuelpovertyEnergycompanyprofits1How

is

the

domestic

energy

market

structured?111.1

Whatisdomesticenergy?Electricityandgas1111Howistheenergymarket

structured?Domesticandnon-domesticenergymarkets1215HowdoesNorthernIreland'senergymarketdiffer

fromtherestoftheUK?1717172123231.2

Generation:Howandwhereisenergygenerated?Howisgasproduced?Howiselectricitygenerated?1.3

Networks:Howisenergy

transported?Gasnetworks3CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketElectricitynetworks26282829311.4

Suppliers:Whosupplies

energytohouseholds?Whatisthedifferencebetweenthewholesaleand

retailmarket?Howmanyenergysuppliersarethere?1.5

Policymakersandregulators:Whogovernstheenergymarket?Whosetsenergypolicy?31HowaretheelectricityandgasmarketsregulatedinGreatBritain?

321.6

TheEnergyBill2022-23332Understanding

energy

bills352.1

Whatarethecomponentsofanenergybill?Wholesalecosts3535353636373738383940NetworkcostsOperatingcostsPolicycostsSupplierprofitandmargin2.2

Howisanenergybillcalculated?UnitrateStandingchargeWhatarethedifferenttypesofenergytariffs?Whatistypicaldomestic

consumption?2.3

WhatistheaverageenergybillundertheenergypricecapandEnergyPriceGuarantee(EPG)?Whatistheenergypricecap?WhatistheEnergyPriceGuarantee(EPG)?2.4

Howmuchhavestandingchargesincreased?Whyhavestandingchargesincreased?2.5

Whataffectsthecostof

anenergybill?Energyusage4142464949505051EnergysupplierTarifftype:

Fixedand

variabletariffsMetertype535455Paymentmethod4CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketLocation572.6

Whydoesthepriceofgasdrive

electricityprices,includingrenewables?61Whatismarginalpricing?613Current

challenges

in

the

supply

market633.1

Trendsinwholesaleprices63636465656667686869707071GaspricesElectricityprices3.2

Whyhave

energypricesincreasedrecently?Whydid

pricesincreasebeforethewarinUkraine?WhydidRussia’sinvasionofUkraineincreaseprices?3.3

SupplierfailureSupplieroflastresort(SoLR)Specialadministrationregime(SAR)Howarethecostsofsupplierfailurerecovered?3.4

LossofcompetitionHowdorisingwholesalepricesreducecompetition?Howdorisingwholesalepricesreducemarketswitching?3.5

Howdowholesaleenergycostsaffectdomesticcustomers?Howdoesspendingonenergyvaryby

income?Fuelpoverty7272733.6

Generatorprofits:Whyareenergy

billsrisingwhenenergycompaniesaremakingrecordprofits?74747475Aredomesticconsumerspayingforcompaniesrecordprofits?Whyareenergycompaniesmakingrecordprofits?Howareenergycompaniestaxedinthe

UK?5CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketSummaryDomesticenergyisenergyusedinthehome.Forinstance,forlighting,cooking,heating,and

poweringdevices.Itisusuallyprovidedtohouseholdsintheformofelectricityorgas.Thisbriefingexplainskey

conceptsinGreatBritain’sdomestic

energymarket.Itaimstoanswerthesequestions:•••Howisthedomesticenergymarketstructured?Howisatypicalhouseholdenergybillcalculated?Whatarethecurrentchallengesintheenergysupplymarket?ItisasetofLibrary

briefingsondomesticenergy.OthersareDomestic

EnergyPrices,Gas

and

electricity

prices

under

the

Energy

Price

Guarantee

andbeyond

andHouseholds

off

the

gas-grid

and

prices

for

alternative

fuels.ThisbriefingfocusesonGreatBritain’senergymarket.NorthernIrelandhasadifferentenergymarket,

withitsownrulesandregulations.How

is

the

domestic

energy

market

structured?InGreatBritain,mosthouseholdsaresuppliedwithgasandelectricitythroughtheenergysystem.Thissystemiscomposedof:••generation(producingenergy)transmissionanddistribution(transportingenergyfromwhereitisgeneratedtowhereitisneeded)•retail(energysuppliersbuygasand

electricityfromenergygeneratorsonthewholesalemarket

andselltoconsumerson

theretailmarket)TheGovernmentsets

energypolicyandthe

OfficeofGasandElectricityMarkets(Ofgem)regulatestheelectricityandgas

markets.Thestructureofthedomesticenergymarket

isshowninthediagrambelow.6CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketNotes:LNGisliquefiednaturalgas.GDNsare

Gas

DistributionNetworks.DNOsare

Distribution

NetworkOperators.Ofgemisthe

Office

ofGas

andElectricityMarkets(Ofgem).7CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketHow

and

where

is

energy

generated?Energygenerationreferstoproducinggas(fromextraction)andelectricity(fromburningfossilfuels,nuclearorrenewables).Most

of

the

gas

consumed

in

the

UK

came

from

domestic

production

(54%in2022),withtheremaindercomingfromimports.TheUKimportsgasthroughpipelinesfromEuropeandtankersofliquifiednaturalgas(LNG)fromvariouscountries.Most

of

the

electricity

consumed

in

the

UK

is

generated

in

the

UK.In2022,41%ofelectricitywasgeneratedfromfossilfuels,41%wasfromrenewablesources(such

assolarpower

and

wind

power),and15%wasfromnuclearenergy.How

is

energy

transported?Oncegenerated,gas

and

electricityaretransportedthroughtransmissionanddistributionnetworks.GasistransportedacrossthecountrybytheNationalTransmissionSystem(NTS).TheNTSsuppliesgastotheeightGasDistributionNetworks(GDNs)thatcoverdifferentgeographicalregionsofGreat

Britainandprovidegastohouseholds.Electricityistransportedfrompowerstationsbytransmissionnetworks.Electricitysubstationsare

usedtotransferhighvoltageelectricityfromtransmissionnetworksintolowervoltageelectricityondistributionnetworks,whichsupplyhouseholds.Who

supplies

energy

to

households?Thesupplierbuysgasandelectricityonthewholesalemarket

andsellsitontodomesticconsumersintheretailmarket.Therewere21activesuppliersinthedomesticgasand

electricityretailmarketsas

ofMarch2023Who

governs

the

energy

market?TheGovernmentDepartmentforEnergySecurityandNetZerosetspolicyandtheOfficeofGasandElectricityMarkets(Ofgem)

regulatestheelectricityandgasmarkets.RecentGovernmentpolicyhasfocusedontheenergy‘trilemma’ofsustainability,securityandaffordability.TheEnergyBill2022-23aimstoensurea“a

cleaner,

more

affordable

andmore

secure

energy

system

for

the

long

term".8CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketHowareenergybillscalculated?Customers’billsarecalculatedby

multiplyingthepricesper

unit(unitrates)ofgasorelectricitybythe

amountsused,plusthedaily‘standingcharge’.Tariffsareeitherfixedforacertainamountoftime,typicallyoneyearormore(a‘fixedrate’tariff)ortheycango

upordownaccordingtothemarket(a‘variable’tariff).Energy

price

cap

and

Energy

Price

GuaranteeTheEnergyPriceGuarantee(EPG)

wasintroducedbetweenOctober2022andMarch2024toreducepriceincreasesfordomestic

customers.Underthescheme,theGovernment

setsmaximumpricesforgasand

electricityandcompensates

energysuppliersforprovidinggasandelectricityatbelowcostprices.BeforetheEPG,maximum

pricesforcustomersonstandardvariabletariffs(SVTs)werecontrolledbyOfgem’spricecap.ThepricecapandEPG

are

oftendescribedintermsoftheannualbillforahouseholdwithtypical

energyconsumptionpayingbydirectdebit,buttheactualcostforeachhouseholddependsonhowmuchenergyisconsumed.What

affects

the

cost

of

an

energy

bill?The

cost

of

anenergy

billdependson

energy

usage,energy

supplierand

tariff,typeofmeter,paymentmethod,andlocation.Why

does

the

price

of

gas

drive

electricity

prices?Thepricepaidforwholesaleelectricityonthe‘spotmarket’,where

aroundtwo

fifths

of

electricity

is

thought

to

be

sold,isset

usingasystemcalled'marginalcostpricing'.Themostexpensivetype

ofenergyusedtogenerateelectricitysetsthepriceforalltypesofenergy,includingrenewables.Asgasisoftenthemostexpensiveenergysource,prices

ofelectricitygenerated

bygaseffectivelysetthe

wholesalepriceforallgeneration.Whatarethecurrentchallenges

in

supplyingenergy?Wholesale

prices

risesWholesaleenergyprices

startedtodramaticallyincreasefrommid-2021tosummer2022,bothgloballyandintheUK,afterhavingbeenstableforadecade.Theinitialriseinenergy

priceswas

mostlybecauseofrisingdemandafterCovid-19restrictionswerelifted,andthen

becauseofRussia'sfull-scaleinvasionofUkraine.Priceshavereturnedtolowerlevelsin2023.9CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketSupplier

failureManysuppliersthatcouldnotprotectthemselves

againsttheincreaseinwholesalepriceshavetradedataloss,becomeinsolventandhadtonotifytheregulator,Ofgem,thattheycannolongertrade.Ofgemhastwo

main

processesformaintainingthe

supplyofenergytocustomerswhenasupplierfails:transferringcustomerstoa‘supplieroflastresort’orestablishingaspecialadministrationregime(SAR).Thecostsofsupplierfailurearerecoveredthroughdomesticenergybills.Thisisanindirectcostofhigherwholesaleprices.Loss

of

competitionSuppliersoperateinacompetitivemarketwheretheysettheirownprices,andconsumerscanchoosesuppliersbasedonpreferencessuchaspriceandservice.Increasesin

wholesaleenergypriceshavemeantthatmostsuppliersaresellingenergynearthe

maximumtariffpossible,theGovernment’spricecaporEnergyPriceGuarantee(EPG).Thishaseffectivelyhaltedcompetitionasthereisnoincentiveforcustomerstosavemoneyby

switchingsupplier.Fuel

povertyPriceriseshaveadisproportionateimpactonlower-incomehouseholds.Thereisconcernthathighenergypricesarecausingmorehouseholdstobeinfuelpoverty,wherethey

mustspendahighproportionoftheirincometokeeptheirhomeatareasonabletemperature.Inthelatestestimates,

around13%

of

households

in

England,25%

inScotland,14%

in

Wales,

and24%

in

Northern

Ireland

wereclassedas

beinginfuelpoverty.However,fuelpoverty

datafordifferentnationsarenotdirectlycomparableanddonotaccount

fortherecentrapidincreasesin

domesticenergy

prices.Energy

company

profitsManycompaniesthatgenerateenergy(oilandgasproducersandelectricitygenerators)haveannouncedrecordprofitsbecauseofrisingwholesaleenergy

prices.10CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarket1How

is

the

domestic

energy

marketstructured?Domesticenergyisenergyusedinthehome.Forinstance,forlighting,cooking,heating,and

poweringdevices.Itisusuallyprovidedtohouseholdsintheformofelectricityorgas.1.1Whatisdomesticenergy?Electricity

and

gasIn2022,domesticenergywasusedforspaceheating(62%),waterheating(17%),lightingandappliances(17%)andcooking/catering(3%).

Thelargest1sourcesofdomesticenergyusageweregas(64%),followedbyelectricity(24%),oil(6%)andrenewablesforheat(4%).

Thisbriefingcoversthe2domesticelectricityand

gasmarket.OtherdomesticenergysourceswillbecoveredintheLibrarybriefingHouseholds

off

the

gas-grid

and

prices

foralternative

fuels.3•Gas:Thedomesticsectoraccountedfor57%ofgasconsumptionintheUKin2022.

75%ofdomesticgasisusedforspaceheating,22%forwaterheatingand2%forcooking.45•Electricity:Thedomesticsectoraccountedfor35%ofelectricityconsumptionintheUKin2022.

Almostthree-quarters(74%)of6electricitywasusedforpoweringlightingandappliances,16%forspaceheating,6%cooking/cateringand

5%forwaterheating.7Central

heating1DepartmentforEnergySecurityandNetZero(DESNZ),Energy

consumption

in

the

UK

2023,End

usedatatables(U3)23DESNZ,UK

Energy

inBrief

2023,1September2023Houseof

CommonsLibrary,Households

off

the

gas-grid

and

prices

for

alternative

fuels,20September20234567DESNZ,UK

Energy

inBrief

2023,1September2023DESNZ,Energy

consumption

in

theUK

2023,End

usedatatables(U3)DESNZ,UK

Energy

inBrief

2023,1September2023DESNZ,Energy

consumption

in

theUK

2023,End

usedatatables(U3)11CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketCentralheatingisasystemtoheatmultipleroomsinabuildingby

circulatingheatedair

orwaterthroughpipestoradiatorsorvents.Singleormultiplefuelsourcescanfuelthesesystems.England

and

WalesAccordingtothe2021CensusinEnglandandWales,74%ofhouseholdsusedmainsgascentralheatingand9%

usedelectriccentralheating.This

isbroadlysimilartotheproportionofhouseholdsusingdifferenttypesofcentralheatinginthe2011Census.8Thelibrarydashboard,

Constituency

data:

Central

heating,

2021

Census,showsthetypeofcentralheatingusedinhouseholdsby

constituencyinEngland

andWales.9Northern

IrelandAccordingtothe2021CensusinNorthernIreland,50%ofhouseholdsinNorthernIrelandusedoilastheironlycentralheating.Thiswasfollowedby32%usingmainsgas,15%usingtwoormoretypesofcentralheating,then2%usingelectriconly.10

BetweentheCensus2011andCensus2021theproportionusingoilonlydecreasedfrom

62%andtheproportionusingmainsgasincreasedfrom17%.11TheLibrarybriefingHouseholds

off

the

gas-grid

and

prices

for

alternative

fuels,providesfurtherinformationonNorthernIrelandcensusdatainsection1.3.12ScotlandDataoncentralheatingfromthemostrecentcensusforScotlandhavenotbeenreleasedyet.How

is

the

energy

market

structured?InGreatBritain,mosthouseholdsaresuppliedwithgasandelectricitythroughtheenergysystem.Thissystemiscomposedoffourparts:•Generation(producingenergy)89ONS,2021

Census,DatasetTS046Houseof

CommonsLibrary,Constituency

data:

Central

heating,

2021

census,19June202310

NorthernIreland

StatisticsandResearchAgency,Census

2021

main

statistics

housing

andaccommodation

tables,MS-E11Centralheating(householdbased)

-(classification

1)11

NorthernIreland

StatisticsandResearchAgency,Central

Heating,KS404NI12

Houseof

CommonsLibrary,Households

off

the

gas-grid

and

prices

for

alternative

fuels,20September202312CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarket•••Transmission(movingthe

energylongdistancesfrom

whereitisgeneratedtowhereitisneeded)Distribution(movingtheenergyshortdistancesfrom

thetransmissionsystemintothehomesthatwillusetheenergy)Retail(energysuppliersbuygas

andelectricityfromenergygeneratorsonthewholesalemarket

andsellittohomesontheretailmarket)TheGovernmentsetspolicytodeliverits

aimsonenergyandthe

OfficeofGasandElectricityMarkets(Ofgem)regulatestheelectricityandgasmarkets.Thisisshowninthediagrambelow.13CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketNotes:LNGisliquefiednaturalgas.GDNsare

Gas

DistributionNetworks.DNOsare

Distribution

NetworkOperators.Ofgemisthe

Office

ofGas

andElectricityMarkets(Ofgem).14CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketDomestic

and

non-domestic

energy

marketsThedomesticsectoraccountedfor27%ofUKenergyconsumptionin2022.Incomparison,transportaccountedfor40%,industryfor17%,andservices13

for16%.Energyconsumptionfromthedomesticsectorhasdecreased

by16%since2000.14Thedomesticandnon-domestic15

energymarketsoperateindifferentways.Theseareshown

inthetablebelow.Differences

between

the

domestic

and

non-domestic

energymarketDomestic~24million~29millionMore

expensiveShorterNon-domestic~0.9

million~2.5

millionCheaperGasconsumersElectricity

consumersEnergy

unitpriceContract

termsLongerDual

fuel

optionsVATAvailableNotavailable20%5%Impactofprice

fluctuationsAffected

lessAffected

moreGovernmentschemesEnergy

price

cap✔✔✔✔✘✘✘✘✘✘✔✔Energy

Price

Guarantee

(EPG)Energy

Bill

Support

Scheme

(EBSS)Alternative

Fuel

PaymentsEnergy

Bill

Relief

Scheme

(EBRS)Energy

Bills

DiscountScheme(EBDS)Thereareapproximately29millionelectricityand24milliongasconsumersinthedomesticmarket.16

Mostdomesticenergyconsumers(70%ofelectricitycustomersand80%ofgascustomers17)havedual

fuelaccounts,meaningtheybuy

gasand

electricityfromthesamesupplier.Incomparison,thereareapproximately2.5million

non-domesticelectricitymeters18

and0.9

millionnon-domesticgasmeters.19Duetoeconomiesofscale,suppliersgenerallyoffernon-domesticconsumers(suchasbusinesses)lowerpricesper

unitofenergythandomesticconsumers13

Includesagriculture,commercial,publicadministration

andmiscellaneous.14

DepartmentforEnergySecurityandNetZero(DESNZ),UK

Energy

inBrief

2023,1September202315

‘Non-domesticconsumers’meansbusinessesthatoperate

outof

non-domesticpremisesandhaveanon-domesticenergycontract.Thisexcludesbusinessesthatoperate

out

ofahome(domesticproperty).16

DESNZ,Quarterly

domestic

energy

switching

statistics,28September202317

Ofgem,Record

number

of

customers

with

small

and

medium

sized

suppliers,28

February201818

DepartmentforBusiness,Energy&IndustrialStrategy(BEIS),Regional

and

local

authorityelectricity

consumption

statistics,26January202319

CornwallInsights,Introduction

to

the

GB

energy

markets

academy,September202215CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketastheyconsumehighervolumesofenergy.However,non-domesticconsumersaresubjecttomoreregulationandhigherVAT.Mostnon-domesticconsumerswillagreeacontractwithasupplieratafixedpriceforalongerfixedperiodthanindomesticenergycontracts.Whenacontract

comestoanend,thenew

pricetheyface

willdependonthecurrentwholesaleprice.Non-domesticenergycostsarethereforemorevolatilethanthoseforhouseholdswhicharemoreprotectedbydomesticconsumersupportschemes.TheGovernmenthasdifferentexistingandnewsupportschemesforenergybills.Fordomesticconsumers,theseincludethe

EnergyBillsSupportScheme(EBSS),EnergyPriceGuarantee(EPG)andAlternativeFuelPayments.Fornon-domesticconsumers,theseincludetheEnergyBill

ReliefScheme(EBRS)andEnergyBillsDiscountScheme(EBDS).TheLibrarybriefing,

Constituencycasework:

Government

support

for

energy

bills,providesmoredetail.

2020

Houseof

CommonsLibrary,Constituency

casework:

Government

support

for

energy

bills,20

March202316CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketHow

does

Northern

Ireland's

energy

market

differ

fromthe

rest

of

the

UK?TheenergymarketisdifferentinNorthernIrelandfromtherestoftheUK,withitsownrulesandregulator.TwothirdsofhomesinNorthernIrelandusehomeheatingoil,afuelthatcanbeusedinthehouseholdtoprovideheating.Therearenoconsumerpriceregulationsforheatingoilbecausethereismorecompetitionfrommanydifferentsupplierscomparedtogasandelectricity.ThisisalsothecaseinGreatBritain,althoughtherearefewerhouseholdsthatuseheatingoil.TheNorthern

Ireland

Utility

Regulator

regulatestheelectricityandgasmarkets.UnlikeinGreat

Britain,gasand

electricitysupplierscanannouncepriceincreases

whenever

theyneedto,ifitisapprovedby

theUtilityRegulator.Theregulatorcapsprofitsat2%forthetwogassuppliers(SSEAirtricityandFirmus)and2.2%fortheelectricitysupplier(PowerNI).Moredetailcanbe

foundonNorthernIrelandStatisticsandResearchAgency’s(NISRA)overviewpagesforenergy,

electricity,gas

andother

fuels(includingheatingoil).1.2Generation:Howandwhereisenergygenerated?Energygenerationreferstoproducinggas(fromextraction)andelectricity(fromburningfossilfuels,nuclearorrenewables).

Supply

measureshowmuchenergyis

availableforusebyconsumers.Thetotalsupplyofenergymustmatchthetotaldemandforenergytoensurethereisalways

enoughenergy

available.How

is

gas

produced?Naturalgasisafossilfuelfoundunderground.Gasproductioninvolvesphysicallyreleasinggasthroughdrillingwellsorhydraulicfracturing(fracking).TheUKcurrentlyimportsmorenaturalgasthanit

exports.In2022,54%ofUKgasdemandcamefromdomesticproduction,withtheremaindercomingfromimports.21

TheUK’srelianceonimportedgashasincreased

asproductionofgasintheUKfellfasterthandemand.Thisisshowninthechartbelow.21

DESNZ,Digest

of

UK

Energy

Statistics

(DUKES),Chapter

4naturalgas,17CommonsLibraryResearch

Briefing,23October2023Introductionto

the

domesticenergymarketThe

UK's

reliance

on

imported

gas

increases

as

productionfalls

faster

than

demandTerawatt

hours

(TWh)Net

exports1,2001,000Demand800Net

imports600400Production20001997

2000

2003

2006

2009

2012

2015

2018

2021Source:

DepartmentforBusiness,EnergyandIndustrialStrategy(BEIS),Digest

of

UK

energy

statistics(DUKES):

natural

gas,Table

4.2Domestic

supplyTheUKhasadomesticsupplyofgasfromtheUKContinentalShelf(UKCS)

intheNorthSea.Untilthemid-2000s,the

UKwasself-sufficientwithgas.Productionhadexpandedrapidlyinthe1990sandtheUKwas

anetexporterofgas.Since2000,

outputhaddecreasedduetogasfieldsreachingtheendoftheirlifespan.Whilsttherearesomenewfieldsfurtheraway,they

aremoreexpensivetoreach.TheUKbecameanetgas

importerin2005andhadtobuildinfrastructureandtradelinkstosource

gas.Itstillexportssomegas,mainlytocontinentalEurope(atcertaintimes

duringtheyear)andtoIreland.ImportsIn2022,46%of