How The Energy System Is Structured
There are several authorities in the UK that are responsible for regulating the energy sector. One of these is The Office of Gas and Electricity Markets, also known as OfGem. It operates as a non-ministerial government department and its main responsibility is to protect the consumer. It is also responsible for rolling out various government initiatives and regulations into the industry. OfGem is governed by The Gas and Electricity Markets Authority (GEMA), an independent regulator. its main function is to regulate the energy sector in the UK. The Health and Safety Executive is an independent national regulator that is responsible for regulating and enforcing health and safety in the workplace in Great Britain. The Office for Nuclear Regulation (ONR), an agency of the HSE, has the responsibility of regulating the nuclear energy sector. Finally, the Environmental Agency is responsible for maintaining the integrity of the environment as well as encouraging sustainable development in England. Before Brexit, the government’s role in the energy sector with regards energy regulation was to make decisions, set policy and implement legislation affecting the sector. This was done through the Secretary of State who headed the Department of Energy and Climate Change (DECC), now the Department for Business, Energy and Industrial Strategy (BEIS).
Sources of Energy
Energy used in the UK is generated from a number of different sources including fossil fuels, nuclear and renewable energy sources. In 2013, most of the energy used came from fossil fuels with 86%, and of these, coal contributed the largest with 34%. This was followed by nuclear energy which was 19% and the least energy source used came from hydro with under 1%.
Figure 1: Primary energy supply for UK 2013 (in Ktoe). Data from IEA
Profiles of Leading Energy Companies
Until the 1980’s, the UK’s energy sector (electricity and gas) was government owned and controlled. Reforms introduced during the 1980’s saw the initial privatisation of British Gas, while the privatisation and liberalisation of the electricity sector started in the 1990s. The energy sector is currently private owned.
The energy industry in the UK is complex with different companies playing different roles from production to distribution. For instance, energy generators may not be the same as the energy suppliers or distributors. However, the largest energy suppliers in the UK, also known as the Big Six, are sometimes involved in two or all three of these activities even though they are more involved in energy supply. The Big Six include British Gas, EDF, E. ON, npower, Scottish Power and SSE.
Even though British Gas is the largest supplier of energy in the UK supplying over 11 million homes with gas and 6 million with electricity, EDF (Electricity of France) is the largest electricity generator in the UK with eight nuclear power stations. It produces 20% of UK’s energy (electricity) and it is also the largest producer of low carbon energy. EDF Energy is a subsidiary of EDF Group, one of Europe’s largest energy groups. It is exclusively owned by French national provider EDF S.A., and it supplies power to over 5 million homes and businesses. Apart from low carbon energy, EDF also produces energy from coal and gas.
SSE formerly Scottish and Southern Energy, is a Scottish registered company and is a major producer of wind and hydro energy. It is also the largest producer of renewable energy and the second largest energy supplier in the UK supplying almost 9 million customers which include residential and business customers. SSE was formed in 1998 when Scottish Hydro Electric and Southern Electric merged. Like EDF, SSE’s energy portfolio includes non-renewable energy; coal and gas.
In view of the strong stand that the UK has taken on climate change and against reducing greenhouse gas emissions, energy producing companies have also welcomed this move and are working towards reducing their carbon emissions. For instance, EDF aims to reduce the intensity of carbon emissions from its power (electricity) production to less than a 100g of carbon dioxide per kWh by 2030. The most recent information on carbon emissions from electricity generation for the year 2015 was that EDF produced 203g of carbon dioxide per kWh. It plans to make this reduction by investing in nuclear energy technologies and encouraging its customers to use energy from these sources. SSE on the other hand is working on reducing its greenhouse gas emissions by investing in renewable energy and associated products that it is also encouraging its customers to use.
The UK has in its efforts to decarbonise come up with a number of policies including subsidies to encourage production of renewable and low carbon energy. These have played a part in the kind of investments that energy generators have made. For EDF, subsidy called the ‘Contract for Difference’ has enabled them to be able to be able to be on the brink of embarking on constructing a new nuclear power plant which is expected to power about 6 million homes. This will be the first power station to be built in the UK for over two decades. A decision is yet to be made on whether or not to go ahead with construction and this project has been criticised and deemed unnecessary by some.
On the other hand, SSE scrapped off its plans to invest in four major offshore wind projects worth £20 billion pounds and questioned the viability of the offshore wind sector two years ago. The reasons stated were the high building costs and limited subsidies. However, recently when the government suspended their subsidies on onshore wind farms, SSE declared offshore wind “back on its agenda”. The government also announced that they had secured funding for three further rounds of subsidy contracts. This has put onshore wind projects, some of which were already in motion at a disadvantage. It, however is a positive thing for offshore wind sector. This shows how policies can impact on the type of investment decisions that energy companies make.
Submitted by Climate Scorecard Country Manager Fridah Siyanga-Tembo