State of the energy market 2018

Publication date
11th October 2018
Information types
Policy areas

Energy is an essential service and the lifeblood of our economy. Questions about how energy is produced and supplied, and how affordable it is, are at the forefront of public debate. This report aims to contribute to the debate, by providing rigorous analysis of the current state of energy markets, and the outcomes they achieve.

Ofgem regulates Great Britain’s gas and electricity markets, to protect the interests of current and future consumers. Through our regulation, we aim to deliver five outcomes for consumers:

  • Lower bills than would otherwise have been the case

  • Reduced environmental damage both now and in the future

  • Improved reliability and safety

  • Better quality of service, appropriate for an essential service

  • Benefits for society as a whole, including support for those struggling to pay their bills.

In our second annual State of the Energy Market report, we assess how well energy markets are working for consumers in achieving these outcomes.

It is our second annual assessment of the state of energy markets in Great Britain. It focuses on developments in the energy markets over the past year.

British households and businesses spend around £50 billion on energy each year and their experience of the energy market is mainly via the retail side of the market. This is where trends elsewhere in the market will have their most immediate effects on consumers. For example, disruptive business models and innovative technologies, combined with environmental policies, are shaping the energy sector and feeding into consumers’ energy bills.

There have been many positive developments in retail markets since we began implementing the remedies set out in 2016 by the Competition and Markets Authority (CMA). Consumers now have more suppliers and innovative deals to choose from than ever before, and it is becoming easier for consumers to switch tariffs and suppliers. However, the retail market is still not delivering the desired outcomes for all consumers.

This is why we extended the price protection, originally introduced for customers on prepayment meters, to a further one million vulnerable customers receiving the Warm Home Discount. In July 2018, Parliament mandated us to take further action by introducing a temporary price cap on all standard variable and default fixed-term tariffs. We are working to have the cap in place by the end of 2018.

Improving retail energy markets is only part of our focus. Britain’s energy system is undergoing a profound transformation to meet our need for clean, secure and affordable energy. We aim to facilitate this transformation, and to ensure that all consumers benefit from it.

State of the energy market report 2018: At-a-glance summary

Competition in energy markets

Competition has brought more choice than ever before to active consumers, while the less engaged are still on more expensive default tariffs.

73 The number of active licensed suppliers in June 2018 (last year: 60)

£320 The approximate amount consumers on a Standard Variable Tariff could save by switching to the cheapest tariff in the market (last year: £300)

54% The proportion of consumers on a default tariff, not including prepayments meter tariffs (last year: 57%)

19% The proportion of consumers switching supplier between July 2017 and June 2018 (last year: 17%) 

61% The proportion of consumers who reported they have never switched, or have only switched once (last year: 58%)

Affordability and vulnerable consumers

Low-income households spend less on energy bills, but consumers in vulnerable circumstances remain less engaged on average.

£1,117 The average dual fuel bill for a customer of the six largest suppliers in 2017: a fall in real terms of £52 from 2016

8% The proportion of total expenditure that low-income households spent on energy in 2016-17 (last year: 10%)

19% The proportion of households in England living in privately rented homes that are identified as being fuel poor, compared with just 11% of all English households

2% The proportion of customers repaying a debt for both fuels in England, Scotland and Wales

17 The number of disconnections in Great Britain in 2017 (last year: 210)

17% The reduction in household energy consumption over the last 15 years, after adjusting for changes in temperature

6 million The number of electricity customers on the Priority Services Register, a 36% increase from last year (4.4 million). The equivalent figure for gas is 4.8 million, up by 30% since last year (3.7 million)

Decarbonisation of Energy

The UK is on track to meet current carbon reduction targets but more work is needed to decarbonise key sectors such as heat and transport. 

61% The percentage of carbon emissions reduction between 2010 and 2017 attributed to the power sector

0% The percentage of carbon emissions reduction between 2010 and 2017 attributed to the transport sector

£62 An estimate of the value that the Government places on reducing carbon dioxide emissions by 1 tonne

£27 The estimated consumer cost of the carbon price policy, per tonne of carbon dioxide emissions saved

£315 The estimated consumer cost of subsidies to small scale renewables, per tonne of carbon dioxide emissions saved

520 million tonnes The estimated amount of carbon dioxide saved by selected decarbonisation policies between 2010 and 2017

Security of supply

GB electricity and gas systems have proven to be resilient, with sufficient capacity to meet demand.

0 The number of times gas deficit emergency measures have been deployed this century

1 The number of Gas Deficit Warnings issued in 2018, the first gas warning since 2010

418 million cubic meters The highest level of daily gas demand in 2017/18, the highest since the record of 474 million cubic meters reached in 2010

1.5GW National Grid's average over-estimate of winter peak demand on the transmission system since 2010-11

£980 million National Grid system balancing costs in 2017/18, down from around £1.1 billion in 2016/17