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How Did We Get Here? A Brief History of UK Utilities

By Admin UserJanuary 30, 20225 min read
How Did We Get Here? A Brief History of UK Utilities

Introduction

To understand the current turbulence in the GB energy market, it’s essential to look back at how we got here. The story of UK utilities is one of radical transformation: from state-run monopolies to a liberalised, competitive market, and now to a sector grappling with decarbonisation and unprecedented volatility. In this post, I’ll chart the key milestones for both gas and electricity, highlight pivotal reforms, and reference the public documents that shaped the market we know today.

The Era of Nationalisation

After World War II, both the UK’s electricity and gas industries were nationalised. The Central Electricity Generating Board (CEGB) managed electricity generation and transmission, while the British Gas Corporation oversaw the gas sector. This model prioritised security of supply and universal access, but it was also marked by inefficiency and lack of innovation.

For a detailed account, see the National Archives: The Nationalisation of Electricity and British Gas History.

Privatisation and the Birth of Competition

Electricity

The 1980s and 1990s saw a seismic shift. Under the Thatcher government, the CEGB was broken up into separate generation, transmission (National Grid), and supply companies. The Electricity Act 1989 paved the way for privatisation and the introduction of competition. The Electricity Pool of England and Wales was established as the first wholesale market.

Gas

Similarly, the Gas Act 1986 led to the privatisation of British Gas, which was later split into Centrica (supply) and BG Group (infrastructure). Competition was gradually introduced for domestic customers, culminating in a fully open market by the late 1990s.

For a comprehensive overview, see Ofgem’s History of the Electricity Market and History of the Gas Market.

The Rise of Regulation: Ofgem and Market Codes

With competition came the need for robust regulation. Ofgem (the Office of Gas and Electricity Markets) was established in 1999, merging the previous electricity and gas regulators. Ofgem’s remit: protect consumers, ensure security of supply, and promote competition.

Electricity

The market is governed by a series of codes and agreements, including the Balancing and Settlement Code (BSC), administered by Elexon. The BSC sets the rules for balancing, metering, and settlement. For more, see Elexon’s BSC Overview.

Gas

The gas market is governed by the Uniform Network Code (UNC), which sets out the commercial and technical arrangements for the transportation and balancing of gas. Xoserve acts as the Central Data Service Provider, managing data flows and settlement processes. For more, see Xoserve: What We Do and UNC documentation.

Market Reform: NETA, BETTA, and Gas Balancing

Electricity

In 2001, the New Electricity Trading Arrangements (NETA) replaced the Electricity Pool, introducing bilateral trading and a more dynamic balancing mechanism. In 2005, the British Electricity Trading and Transmission Arrangements (BETTA) extended these reforms to Scotland, creating a single GB market. For a technical summary, see Elexon’s NETA and BETTA History.

Gas

The gas market’s balancing and settlement arrangements are governed by the UNC, with National Grid Gas acting as the System Operator. The gas market has also seen reforms to improve liquidity, transparency, and competition, such as the introduction of the On-the-day Commodity Market (OCM) for short-term balancing.

For more on gas balancing, see National Grid Gas: Balancing Services and Xoserve: Gas Settlement.

Decarbonisation and the Renewables Revolution

Electricity

The 2000s and 2010s saw a new driver: decarbonisation. The Climate Change Act 2008 set legally binding targets for emissions reduction. The Renewables Obligation, Feed-in Tariffs, and Contracts for Difference (CfD) schemes incentivised investment in wind, solar, and other low-carbon technologies. By 2022, renewables regularly supply over 40% of GB electricity (National Grid ESO: Energy Data), and coal is almost entirely phased out.

Gas

Decarbonisation in gas has focused on reducing methane leakage, promoting biomethane injection, and exploring the future role of hydrogen. The government’s Hydrogen Strategy and various pilot projects are shaping the next phase of gas market evolution.

Case Study: The 2019 Capacity Market Suspension (Electricity) and Gas Market Volatility

Electricity

A pivotal moment came in 2019, when the European Court of Justice temporarily suspended the GB Capacity Market, a mechanism designed to ensure security of supply. This created uncertainty for generators and investors, highlighting the complexity of balancing market incentives with regulatory compliance. The market was reinstated in October 2019 after a government review (BEIS: Capacity Market Reinstatement).

Gas

The winter of 2021–22 saw extreme volatility in wholesale gas prices, driven by global supply constraints and high demand. This had a direct impact on both gas and electricity markets, as gas-fired generation sets the marginal price for electricity. The volatility led to supplier failures and highlighted the interconnectedness of the two markets (Ofgem: Supplier of Last Resort process).

The Present Day: Crisis and Opportunity

As we enter 2022, both markets face new challenges: soaring wholesale prices, supplier failures, and the urgent need to decarbonise heat and transport. The government’s Net Zero Strategy and Ofgem’s ongoing reforms will shape the next chapter for both gas and electricity.

Conclusion

The GB utilities sector has come a long way—from state-run monopoly to competitive market, and now to a sector at the heart of the net zero transition. Understanding the distinct histories and structures of gas and electricity is crucial for making sense of today’s headlines and tomorrow’s opportunities.

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