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How the Electricity Retail Industry Has Changed

February 21, 2012 | Comments: 0 | Views: 148

Every morning, millions of Britons across the UK switch on their kettles to make a cup of tea. They expect that as soon as that switch is flicked on, the electricity will flow, water will boil and all will be right with the world. The 2011 National Grid's 2011 National Electricity Transmission System (NETS) Seven Year Statement puts the annual electricity requirement base forecast at 314.7TWh* - that's a lot of kettles. But in the past 20 years there have been some dramatic changes in how that electricity is delivered to end users.

In 2001 the electricity retail supply went through the biggest upheaval in its history with the New Electricity Trading Arrangement. This deregulation effectively took the breaks off the industry and suddenly consumers went from having only three potential suppliers to dozens. It is this choice for the end-user to pick and choose where they get their electricity from that has formed the basis for the complete transformation of the industry in recent years.

In the last few years, millions of customers have changed suppliers. That number is rising all the time, particularly with the advent of online comparison sites and a number of other key economic and sociological factors. The biggest influences on the electricity retail industry have been:

  • A groundshift in consumer behaviour
  • The impact of deregulation and increased competition
  • A more mobile customer base
  • A change in the demographic make-up of the country, with an aging population
  • A much smaller industrial and manufacturing industry
  • The recession
  • Environmental concerns

All of these combine to produce a shift in the way consumers buy their electricity, and consequently a change in the way suppliers need to react to market forces to stay both profitable and competitive.

A consumer-led industry

Perhaps the most influential factors are the change in consumer behaviour, driven in no small part by the fact that the electricity retail industry now has to cope with a much more mobile marketplace. Where once consumers were happy to stick with their supplier for life, now market forces such as price and even whether a company has UK-based help centres can influence the decision-making process. Greater competition has meant that consumers have more buying power and can dictate how suppliers react and manage the market through the pressure of collective consumerism.

An aging population and a much smaller manufacturing industry also has an impact on the demands put on the retail electricity supply in the UK, particularly during certain times of the year. But one of the biggest factors in how the retail electricity industry has had to adapt in recent times has been the impact of the recession.In December 2011, the Centre for the Analysis of Social Exclusion's Fuel Poverty Review stated that 4.1 million households in England were regarded as being in 'fuel poverty' (where more than 10% of a household's income is spent on heating)***. This number is set to rise as more people move from a waged income to relying on a state pension. While international factors have made the wholesale price of electricity fluctuate, it has been difficult for end-users to react to price increases, leaving the suppliers in a Catch-22 situation - put prices up and the mobile consumer base will look to other suppliers. Keep prices low and profits suffer.

A greener future

The advent of alternative methods of electricity generation are bound to have a significant effect on future retail electricity markets. During Q2 of 2011, according to Renewable UK's Green Living Review, renewable energy sources supplied 7.86TWh of electricity, representing 9.6% of the UK's electricity production**. That figure was up from 6.3% during the same quarter in 2010. Predictions are that by 2020, over 30% of our electricity could come from renewable energy sources. If the energy retailers are to keep their share of the market, they will have to recognise that an increasingly 'green' consumer base could dictate not just how much they charge for their product in future, but how that product is sourced too.


Sourced Statistics only (* marked content) *2011 National Electricity Transmission System (NETS) Seven Year Statement **RenewableUK - Green Living Review ***Centre for the Analysis of Social Exclusion - Fuel Poverty Review

Graham Paul - Services Delivery Director (EDW Technology). EDW have a long history developing, implementing and supporting best-of-breed software solutions. Since 2000, their electricity billing systems - part of ERS (Energy Retail Suite) has enabled energy retailers with powerful and highly competitive IT systems, transforming customer experience, improving business efficiency, reducing costs and boosting profits.

Source: EzineArticles
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