Extended Expert View: UK I&C Buyer Market Perspective

Publication Date	September 2005
Publisher	Datamonitor
Product Type	Report
Pages	29
ISBN Number	not applicable
Product Code	DAT00535

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Summary

Introduction

In 2004, UK wholesale gas and power prices reached record highs along with unprecedented levels of volatility. These wholesale market conditions filtered through to the retail market and made life more difficult for energy buyers as they grappled not only with high prices but also with more complex supply negotiations arising from the volatile market conditions.

Scope

insight into the reasons behind increased prices and volatility in UK energy markets
understanding of how these factors are likely to influence the wholesale market in the longer term
advice about steps that UK energy buyers could take to mitigate the impact of these market changes

Highlights

All parties agreed that the dominating events in the energy market during 2004 were the dramatic price rises and the associated increase in volatility, although not all were in agreement about their origin.

The structural wholesale position of each supplier will have an important effect upon their ability to deal with future wholesale market movements. Suppliers that are short in either gas or power will be much more exposed to fluctuations in wholesale energy prices.

The UK market will continue to be influenced strongly in the short term by volatility caused by gas supply constraints and in the longer term by environmental and EU related issues.

Reasons to Purchase

Understand how the wholesale market is influencing the buying strategies of major energy users
Identify the wholesale position of each supplier and how this impacts their likely future strategy
Explore how future energy purchasing strategy will evolve in light of wholesale market movements

Content

Chapter 1 Executive Summary
- In 2004 UK players took steps to decrease the impact continued high prices and extreme energy market volatility had on their businesses
Chapter 2 Introduction
- This report summarizes relevant wholesale topics for UK energy buyers
Chapter 3 Wholesale Prices And Volatility
- All brokers and utilities agreed that the dominating events in the energy market during 2004 were the dramatic price rises and the associated increase in volatility
Chapter 4 Uk Supplier Activity
- UK suppliers were keen to tie their clients into longer contracts to smooth out MEU demand volatility, but had little success
- Almost two-thirds of non-residential energy users currently buy their electricity and gas on contracts lasting 12 months or less
- Due to the variability of MEU energy demand, suppliers back this volume from trading on wholesale energy markets
- Supplier positions result in a range of different exposures to the wholesale power market, British Gas having the greatest exposure
- All players are structurally short on gas, through British Gas' significant assets base provides it a greater degree of insulation to volatility compared to the smaller players with few or no gas assets
Chapter 5 Uk Energy Buyer Activity
- Prices were pushed particularly high around the time of the October contract round and buyers that renewed earlier in the year achieved much better deals
- The gap between both the service levels and the prices of the power suppliers closed, which drove an increase in renewals with existing suppliers
- Gas suppliers also have more consistent customer satisfaction in 2005 than they did in 2004
- Continued high prices and volatility, in combination with new channel growth saw more buyers turning to TPIs to assist them in their energy buying
- Gas buyers have started to move from fixed rate contracts, with daily metered customers starting to require flexibility
- For power, the largest power buyers have started to move from fixed rate contracts, but flexibility is not a feature of the rest of the half-hourly market
Chapter 6 Future Influences On The Uk Energy Market
- The UK is looking to renewables and imported gas as domestic gas supplies are now unable to match demand
- Declining UK gas production will lead to greater price spike potential between 2005 and 2007
- The EU will influence the UK market more strongly with time, both from a market and regulatory perspective, which should make large buyers give European markets more consideration
- While the UK will be among the largest buyer of ETS emission credits, the impact on UK MEU buyers will not be as great as within other countries due to the size of its economy
- In 2005 contract rounds buyers should get their renewal or new contract arranged early as not every supplier will bid for all business
Chapter 7 Appendix
List Of Figures
- Figure 1: Closing NBP Within Day Prices
- Figure 2: Changes in average contract length between 2004 and 2005
- Figure 3: Composition of the survey sample by contract length
- Figure 4: Supplier Wholesale Power Position, 2005
- Figure 5: Supplier Wholesale Gas Position, 2005
- Figure 6: Weighted Average Customer Satisfaction by Power Supplier, 04-05
- Figure 7: Weighted Average Customer Satisfaction by Gas Supplier, 04-05
- Figure 8: Analysis by number of gas buyers
- Figure 9: Analysis by volume of gas consumed
- Figure 10: Analysis by number of power buyers
- Figure 11: Analysis by volume of power consumed
- Figure 12: UK Power Generation Fuel Mix
- Figure 13: UK Supply/Demand Balance, 2005-10
- Figure 14: Power generation in relation to national CO2 emissions, 05-10