Making UK Energy Smarter

Description

This case describes the history of the United Kingdom's domestic energy industry and the country's efforts to create a more competitive, greener, and distributed power sector. On July 24, 2017, the United Kingdom government and the industry regulator, the Office of Gas and Electricity Markets (Ofgem), published a report listing 29 actions to be taken to "remove barriers to smart technologies," "enable smart homes and businesses," and "improve access to energy markets for new technologies and business models." The report promised yet more disruption for the 60 suppliers who provided energy for the UK's 27.1 million households. How welcome the proposals would be to the players in the industry was not clear. The "Big Six" vertically-integrated generators and retailers, which accounted for more than 80% of the market, were facing declining sales and market share in the face of a huge number of new entrants: 30 in the last three years alone. The recent threat of a price cap on bills-or even a government take-over-did little to encourage further investment. Meanwhile, a group of six mid-tier challengers, accounting for 12% of the market, had grown big enough to be burdened with the many social and environmental charges faced by the Big Six and their growth had slowed. Several of them were now diversifying into other service offerings such as broadband or homeowner's insurance, or were looking for opportunities overseas. Then there were more than 50 small players, mostly recent entrants. While many were growing fast, often using their customers' deposits to fund growth, they were not profitable and had limited capacity for investment in "smarter energy." Meanwhile, the UK government was keen to encourage players such as Google and Amazon into the market to drive disruption. Just how quickly the UK energy market would get smarter remained to be seen.

Keywords

Barriers to entry Barriers to exit Competition Competitive Strategy Disruption Disruptive innovation Distribution Economics Energy Energy policy Government policy Government regulations Market entry Oligopolies Subsidies Vertical integration wholesale