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Introduction
 
2004 was a year to remember for the energy industry. The soaring global oil price was felt throughout UK gas and power markets. Industrial power users were savaged in the October round and the major utilities raced closer to vertical integration.
 

 
Scope
 
An overview of the key themes and events of 2004 in energy retail.
 
An examination of the underlying market fundamentals that shaped events in 2004, and many that will influence 2005 as well.
 
A headline assessment of the winners and losers in the retail market.
 
Highlights
 
``A flurry of activity bolstered all parts of SSE's business without denting its reputation for judicious acquisitions. Centrica invested in upstream assets and exited road services but continued its multi utility strategy. The British Energy restructuring kept a customer champion alive; but hindered the position of the direct supply business.``
 

 
``GDF burst into the Major Energy User power market; and gas market activity revolved around BP's exit. Brand rose up the agenda as MEUs started to place a premium on service and multi-country contracts came a step closer. Key Account Managers bore the brunt of customer dissatisfaction with rising prices.``
 

 
``LCPD preparations continued, with plant owners adopting a wide range of strategies, though over concern the NAP remains. EU ETS and the UK's CO2 targets are set to spur a new 'dash for gas'. The Renewables Obligation became more stringent and all but one utility were net buyers.``
 

 
Reasons to Purchase
 
Identify the events that shaped 2004.
 
Assess the fundamental themes that underpinned the retail market.
 
Understand key supplier strategies.
 

TABLE OF CONTENTS
 
CHAPTER 1 EXECUTIVE SUMMARY 3
 
In MEU retail, GDF made a splash and price rises put pressure on all round 3
 
In SME retail, SSE and EDF Energy moved forward while the nature of the market started to change 4
 
The wholesale market surged upwards, and more people started to worry about security of supply 4
 
The regulatory scene was a combination of UK and environmental EU initiatives 4
 
CHAPTER 2 INTRODUCTION 10
 
CHAPTER 3 CORPORATE MOVERS 11
 
A flurry of activity bolstered all parts of SSE’s business without denting its reputation for judicious acquisitions 11
 
Scottish Power surged ahead with Six Sigma 12
 
EDF Energy increased its focus on the core business, and drove further synergies 13
 
NGT LDZ sales reignited the network assets market – all parties claimed to have benefited, not everyone believed them 15
 
GDF surged into the power market 16
 
Centrica invested in upstream assets and exited road services, but continued its multi utility strategy 17
 
Powergen I&C became E.ON Energy UK, and Powergen residential became a home services provider 19
 
RWE rebranded its UK business, but finished the year at a crossroads 20
 
The British Energy restructuring kept a customer champion alive; but the terms will affect the position of the direct supply business 21
 
BP exited the retail market and will not be replaced 22
 
CHAPTER 4 MAJOR ENERGY USERS RETAIL LANDSCAPE 24
 
GDF burst into the Major Energy User power market; and gas market activity revolved around BP’s exit 24
 
Dalkia and London Energy pushed energy services through the Performance Partnerships marketing initiative 26
 
Brand rose up the agenda as MEUs started to place a premium on service and multi-country contracts came a step closer 27
 
Brokers have never been more influential, but are under pressure 28
 
Key Account Managers bore the brunt of customer dissatisfaction with rising prices 30
 
CHAPTER 5 SME RETAIL LANDSCAPE 32
 
SSE was the principal mover in the SME power market and, like EDF Energy, moved into gas as well 32
 
Renewing rather than switching became the key feature of the SME market 33
 
The structure of many UK suppliers enabled larger SMEs to get a better price by taking a mass-market type product 35
 
CHAPTER 6 MARKET FUNDAMENTALS 37
 
Wholesale energy prices rallied, particularly around the October contract round 37
 
The Renewables Obligation became more stringent and all but one utility were net buyers 38
 
Declining indigenous gas production increased import dependency 39
 
The UK moved closer to becoming an LNG importer again 40
 
CHAPTER 7 REGULATION 42
 
Despite obstacles, BETTA remains on track for April 2005 42
 
Energywatch continued its crusade and raised the volume of its voice 43
 
LCPD preparations continued, with plant owners adopting a wide range of strategies, though uncertainty over the NAP remains 44
 
EU ETS and the UK’s CO2 targets are set to spur a new ‘dash for gas’ 45
 
The distribution price control review aimed for significant investment, although the rate of return offered did not meet DNO expectations 46
 
Ofgem reviewed wholesale gas price spikes but many believe that market imperfections remain 49
 
CHAPTER 8 APPENDIX 51
 
Research methodology 51
 
Future readings 51
 
SPP writing team 51
 
How to contact experts in your industry 52
 

 

 

 
LIST OF FIGURES
 
Figure 1: Scottish Power MEU Customer Satisfaction 2004 13
 
Figure 2: 2003 end of year results delivered £73m synergy savings 14
 
Figure 3: I&C power volumes of selected suppliers 17
 
Figure 4: BE pre-restructuring business model 21
 
Figure 5: Power: gains and losses (Nov 03 to Nov 04) 25
 
Figure 6: Gas: gains and losses (Nov 03 to Nov 04) 25
 
Figure 7: Estimated target metrics for the PP trial period to year end 2005 27
 
Figure 8: Importance of price in MEU supplier selection 28
 
Figure 9: Percentage of business (in value terms) placed by 3rd party intermediaries 29
 
Figure 10: Intended future use of 3rd parties relative to 2004 30
 
Figure 11: MEU Customer Satisfaction - Key Account Managers 31
 
Figure 12: Total SME sites (gas and power) (Nov 03 to Nov 04) 33
 
Figure 13: Last event action of SME customers, 2004 34
 
Figure 14: SME strategy was adapted for mass-market and major business customers 36
 
Figure 15: UK carbon production to 2010 46
 
Figure 16: DNO price review – initial adjustments 48