The electricity industry consists of three main parts: generation (making electricity), networks (transporting it from where it is generated to where it is used), and retail or ‘supply’ (selling it to the end consumer). A few energy companies operate across all three of these areas, while others operate in only one or two. The electricity market in Great Britain is entirely privatised and liberalised, meaning that there is full competition between private companies.

Generation

Electricity producers make the electricity which we consume every day. They use a variety of fuels and technologies to do this. There are many companies in the electricity generation sector, from large multinationals operating a diverse generation portfolio to small, family-owned businesses running a single site. Most electricity is generated ‘in bulk’ at large power stations connected to the national transmission network. However, electricity can also be generated in smaller scale power stations which are connected to the regional distribution networks. How many power stations are built and of what type is up to companies to decide on the basis of market signals and government policy on issues such as the environment.

Networks

There are two types of electricity network: transmission and distribution. Transmission networks carry electricity long distances around the country at high voltages, while distribution networks operate at lower voltages, taking electricity from the transmission system into homes and businesses. Electricity networks are regulated monopolies, which means that they are built, owned and maintained by only one company in a particular area. These companies make their money by charging electricity producers and suppliers to use their wires. The regulator sets the maximum amount of revenue which the network companies can earn.

Supply

Suppliers buy electricity from generators in the wholesale market and sell it on to end consumers. Suppliers operate in a competitive market and customers can choose any supplier to provide them with electricity. The domestic supply market contains six major suppliers (supplying over 99% of electricity to households), as well as a few smaller ones. There are more suppliers supplying business and industrial customers.

System Operation

The transmission system throughout Great Britain is operated by National Grid, which is responsible for balancing the system and ensuring that supply of electricity equals demand on a second-by-second basis. Electricity is a ‘just in time’ product, which technology does not yet allow to be stored in large quantities.

Regulation

The electricity market in Great Britain is regulated by the Gas and Electricity Markets Authority, operating through the Office of Gas and Electricity Markets (Ofgem). Ofgem’s role is to protect the interest of consumers by promoting competition where appropriate. Ofgem issues companies with licences to carry out activities in the electricity sector, sets the levels of return which the monopoly networks companies can make, and decides on changes to market rules.

Northern Ireland

The structure of the electricity industry in Northern Ireland is similar to that in Great Britain. It is a liberalised market with competition in both generation and supply. The regulator is the Northern Ireland Authority for Utility Regulation (NIAUR) and the transmission system is operated by SONI. Northern Ireland now participates in a Single Electricity Market with the Republic of Ireland. This market is administered by the Single Electricity Market Operator, a joint venture between SONI in Northern Ireland and EirGrid in the Republic, and is regulated by NIAUR and the Commission for Energy Regulation together.

Trade Associations

The Association of Electricity Producers is the trade association representing the interests of companies that generate electricity throughout the UK. The interests of the electricity industry at European level are promoted by EURELECTRIC. There are other trade associations which represent the interests of companies in different parts of the electricity industry and which promote particular technologies.