As the largest producer of low-carbon electricity in the country, EDF Energy benefits over the long term from the increase in the wholesale power price as a result of the application of a carbon price to the carbon emissions of fossil fuelled generation. Electricity producers in Great Britain are subject to two main carbon pricing mechanisms, the UK Emissions Trading System (UK ETS) and the UK’s Carbon Price Support tax.
The UK Emissions Trading Scheme (UK ETS) came into operation on 1 January 2021, replacing the UK’s participation in the EU ETS and operating with broadly similar rules to the EU ETS. UK ETS auctions commenced in May 2021. The UK ETS has delivered broadly similar carbon prices to the EU ETS but, as expected in a significantly smaller scheme, the UK ETS market has been less liquid than the EU ETS and prices have been more volatile. Further developments of the UK ETS are expected over the next few years, including the alignment of the cap on the number of allowances with the UK’s transition to net zero. In the December 2020 Trade and Cooperation Agreement, the UK and the EU agreed to give serious consideration to linking the UK ETS and EU ETS but made no commitment to do so. There has been no indication of any progress towards this linkage during 2021.
The Carbon Price Support tax applied to electricity producers in Great Britain is set at £18/tonne until March 2024.
| 31/12/2021 | 31/12/2020 | |
|---|---|---|
| Customer electricity supplied (in GWh) | Customer electricity supplied (in GWh)31/12/2021 43,372 |
Customer electricity supplied (in GWh)31/12/2020 40,850 |
| Customer gas supplied (in GWh) | Customer gas supplied (in GWh)31/12/2021 36,032 |
Customer gas supplied (in GWh)31/12/2020 29,462 |
| Number of domestic product customer accounts at the end of the period (in thousands) | Number of domestic product customer accounts at the end of the period (in thousands)31/12/2021 5,512 |
Number of domestic product customer accounts at the end of the period (in thousands)31/12/2020 4,837 |
The Customer business is responsible for the supply of gas and electricity to residential and business customers across Great Britain and the wholesale market optimisation of EDF Energy’s generation and customer assets.
EDF Energy sells energy to two major customer segments: residential and business customers. The size of business customers ranges from large public sector contracts to small privately-owned businesses. EDF Energy adopts different risk management strategies for residential and business customers.
EDF Energy continues to seek out opportunities to offtake power from major renewable energy sites. In 2021 EDF signed a fifteen-year agreement with RWE for the offtake of all power from the Sofia windfarm which will be one of the largest offshore windfarms in Europe when completed in 2026.
EDF Energy is one of the UK leaders in energy efficiency installations, through the Energy Company Obligation Scheme (ECO). The platform I&C Battery Flexibility Services have secured an additional 211MW in the year for contracts between 7 and 12 years in length.
EDF remains committed to its Smart Meter installation programme, part of upgrading the UK’s energy infrastructure to enable concepts such as smart grids and time-of-use tariffs, which contribute to grid resilience as the UK moves towards a low carbon future.
EDF Energy supplied 12.541TWh of electricity and 35.228TWh of gas for the residential segment in 2021. As at 31 December 2021, EDF Energy had
3.252 million electricity accounts and 2.261 million gas accounts. The 2021 churn at 17% showed a slight decrease compared to 2020 (at 20%), driven by the Energy Crisis slowing churn in H2 2021. EDF Energy’s market share increased from 9.3% at the end of 2020 to 10.5% (1) at end-October of 2021.
The Coronavirus pandemic had a substantial impact on the business in 2020, however this has been limited in 2021 as the economy has recovered following the removal of restrictions. However, given the economic downturn now being followed with a cost-of-living increase across the UK, there is concern over the affordability of energy bills for vulnerable customers, particularly as bills are rising because of higher global gas prices. Therefore EDF is highly engaged with the UK Government and the regulator Ofgem to review issues such as supplier resilience, the tariff cap methodology and customer affordability concerns.
Gas and power wholesale prices in the UK have risen significantly over winter 2021, driven by lower gas storage levels following a cold winter, delays to the Nordstream II gas pipeline certification, high gas demand in Asia and an unplanned interconnector outage between UK-France. These price rises can largely be passed onto B2B consumers, however residential customers are protected to the extent that the Standard Variable Tariff (SVT) cap is fixed based on market forward prices in the previous six-month period.
This inflexibility in the cap price methodology means that the SVT tariff is now the cheapest in the market, and considerably below the marginal cost of supply. In total
c.30 suppliers have failed in 2021, the largest being Bulb with 1.7 million customers and Avro Energy which had 580k customers. Some small-medium suppliers have collapsed as a result of an insufficient hedging policy. Others have collapsed because they could no longer meet the cash requirements of continuing to trade when prices for power are so high.
The customers of these failed suppliers have their supply protected by the Ofgem Supplier of Last Resort (SoLR) process, which appoints a new supplier or failing that, a special administrator. Costs to remaining suppliers of fulfilling their obligations as a SoLR can be recovered through an industry mutualization process, which sees levy claims, approved by Ofgem, submitted to the Gas and Electricity Network Operators for recovery through distribution costs. Ultimately these costs will then be passed onto consumers in supply tariffs. There is a time lag between incurring costs and the recovery, which places a significant cash burden on energy suppliers that act as a SoLR in the current market context.
EDF Energy was appointed as SoLR for Utility Point which had 220k customer accounts, these customers were migrated onto EDF Energy’s IT systems over November-December 2021. EDF Energy was also appointed as SoLR for Zog Energy’s 11,700 accounts.
EDF Energy faces further financial losses from the high energy prices, due to the requirement to offer capped Standard Variable Tariffs (SVT) to all customers. Most of the customers whose fixed offer is expiring are currently choosing an SVT tariff, which in the current market circumstances does not allow EDF Energy to charge tariffs that reflect the real costs of supply. An additional risk is the uncertainty regarding the supply and hedging policy linked to the fact that customers can, depending on the evolution of market prices, end their SVT contract at any time, without any exit fees.
EDF Energy is engaged very actively with the Regulator, UK Government and other stakeholders in the discussions on the market regulations reform.
(1) Cornwall insight figure.
