How the UK energy companies and market works?

Electricity generation by Energy Companies

The National Transmission Network has various large power stations that generate the most electricity in the UK. However, the electricity is also generated in smaller scale power stations that are connected to the regional distribution networks. The energy companies are responsible to select the number and type of power station to generate electricity. Their selection criteria is based on market signals and government policy on issues for example the environment. These energy companies ranges from family-owned businesses running a single site to large multinationals companies.

Transmission and distribution networks

There are two types of electricity network: transmission and distribution. Transmission networks are capable to carry the generated electricity long distances around the UK at high voltages while Distribution networks are capable to run at lower voltages. Distribution networks are responsible to take electricity from the transmission system into end user’s homes and businesses.

The National Grid runs the transmission system. The National Grid is responsible to balance the system and ensure that the electricity supply meets the demand on a second-by-second basis. The gas industry in the UK has the similar infrastructure for the transmission and distribution of gas.

Energy supply

In the UK each energy Supplier buys energy in the wholesale market and sell it on to its clients. The energy supplier market in UK is extremely competitive. The customers can choose any supplier to provide them with gas and electricity. There are various websites to compare the energy prices in the UK for any end user address. Mostly people visit these websites to compare prices and then find the cheapest energy rate for their postcode. These websites can set up your contracts in few minutes. Moreover, paying the energy bills in UK is easy by setting up a direct debit with your energy supplier.

A changing generation landscape

Over the years, there have been various  changes in the energy market. These changes have had an effect on:

• Power Generation mix
• Flexibility and security of supply
• Renewable deployment
• Significant emissions reduction

Energy regulation

In the UK, the electricity and gas markets are regulated by the Gas and Electricity Markets Authority. These authorities operate through the Office of Gas and Electricity Markets (Ofgem). Ofgem’s is responsible to protect the interest of consumers by promoting competition where appropriate. All of the companies in the electricity and gas sectors must get licences from OFGEM to carry out activities in energy sector. These licences sets the levels of return which the networks companies can make. The OFGEM can decide on changes to market rules and regulations.

Why Energy Companies are increasing UK energy prices?

Mostly the increased demand leads to wholesale gas price being increased that is then passed on to consumers. The energy regulator Ofgem said the cap for average annual consumption on the standard tariffs will rise by £139 to £1,277.  This tariff is used by about 11 million British households. For the four million homes with pre-payment energy meters, the cap will rise by £153 to £1,309.

The energy price cap was originally introduced in January 2019, when it saved people on standard tariffs an average of £76 a year. But in past few months, due to the growing demand of energy gas prices have climbed especially because of pandemic. Few of the reasons for this rise are the exacerbating costs like High carbon prices, low gas storage stocks and maintenance work affecting some North Sea. All in all, the energy prices are expected to increase in the coming months.