What does 2021 hold for the UK Energy Market?

Covid-19 dominated 2020

Businesses of all sizes and capabilities were forced to adapt or die to the new strict measures designed to curb (with little success) the spread of the virus. The first lockdown was supposed to last just a few weeks, it ended up lasting three months, and restrictions remained on our everyday lives.

With the failure of the first lockdown the government then decided to try the same flawed tactic again in an attempt to ‘rescue Christmas’, it failed, and now millions of us again find ourselves under restrictions and unable to see our families over the festive period.

The challenges Energy Suppliers have met

Energy suppliers have had to adapt, and many have done so admirably. Using technology, many have been able to allow their workforce to work from home and continue to operate.

There was a slight reprieve over the summer months due to the collapse in wholesale energy prices, but the introduction of the lowest ever price cap by Ofgem put the squeeze on profits once more.

With rising unemployment and the economic damage wrought by the handling of the COVID-19 crisis, concerns began to rise over increases in consumer bad debt. More energy suppliers began to struggle, and when the time came to pay out their Renewable Obligations, several were unable to do so, resulting in them going under. 

The UK Energy Market in 2021

The main challenges energy suppliers are likely to face include: 

Ongoing Covid-19 woes – After two nationwide lockdowns and a lockdown in all but name over the Christmas period, it is clear that the UK government’s strategy for dealing with the virus is not working.

Infections continue to rise, as does the number of deaths. 2021 looks set to be more of the same, even with the introduction of a vaccine. More economic damage is forecast, and we can expect to see more energy suppliers fall as bad consumer debts continue to mount.

Also read: Total number of Energy Bill payers in arrears climbs over 2 million, and Energy Suppliers criticised for poor customer service

Brexit – It feels like an eternity since the Leave campaign won the Brexit referendum back in 2016 and finally after years of wrangling, arguments and protests the UK is on the verge of fully leaving the European Union.

Whether that break comes with an acceptable trade deal remains to be seen, however. Depending on the result of whether negotiations will result in a deal or no deal, we can expect more political turmoil in the short term.  

Also read: Brexit – Deal or no deal, what will the implications be for the UK Energy Sector?

Green Energy Push – The government is running full steam ahead with its Green Industrial revolution, and there is likely to be many more announcements on how it intends to make the country NetZero by its target deadline.

The big Cop26 conference due to be held in Glasgow in 2021, is likely to be the place where many of the proposals will be finalised and more announced.

Energy suppliers are likely to be placed at the forefront of this climate drive, and we can expect increasing regulations and rules over green tariffs.

Another possibility is that energy suppliers could be put in a similar position to the one they’re in now with the smart meter rollout, only this time they will be tasked with rolling out heat pumps.

The installation of new gas boilers is to be banned from 2025, and the government wants more environmentally friendly technology installed in homes across the country.

Also read: Ofgem to increase monitoring of Green tariffs and put an end to ‘Greenwashing.’

RIIO-2 Price Control

In 2020, Ofgem published its Final Determinations on its RIIO-2 price control regime within the transmission and gas distribution industry. The main decisions for the price control period that will impact energy suppliers are:

Preparing the networks to meet net zero targets- Ofgem approved a £40 billion investment package in national infrastructure to create a greener energy system. Many energy network companies challenged the regulators plans on this stating that the investment was not large enough for them to achieve the NetZero goals.

Low costs to consumers and lower returns to suppliers – Allowed returns are forecast at 4.3% to reflect expected outperformance of 0.25%. The lower returns caused anger among many energy companies.

Also read – Unprecedented rebellion on the cards as energy companies protest Ofgem pricing plans

Increased support for customers – the price control regime focuses on service targets, namely their quality and as such £60 million of funding has been made available to support the most vulnerable customers.

Also read – Add your customers to the Priority Service Register with Dyball’s CRM

Despite the huge challenges’ energy suppliers in the UK market have faced in 2020, next year will be one of massive change. For forward thinking, agile and companies that embrace technological innovations the year holds a lot of promise and opportunity for new entrants and companies seeking to challenge the larger providers. 

Further Reading

Energy Price Forecast 2021: Covid-19, Brexit and much more

Cyber Attack on Energy Supplier People's Energy compromises an entire database

Energy White paper: Energy Billing to be shaken up by introducing automatic tariff switching

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