The exergy method has been used to analyse changes in the structure of the UK energy system over a period of more than 30 years from 1965. A sectoral approach was employed, with the supply side examined in terms of themain energy sources, while final demand was separated into four energy end-use groups: the domestic, service, industrial and transport sectors. Estimates of sector-weighted or ‘lumped’ parameters, such as exergy efficiencies, were obtained from the particular characteristics of each sector. These were employed to determine the exergetic ‘improvement potential’ for critical elements of the energy system. Electricity generation together with final energy demand in the domestic sector and in transport are shown to account for nearly 80 per cent of the Second Law improvement potential. This poor thermodynamic performance is principally due to exergy losses in combustion and heat transfer processes associated with power generation, space heating and main transport modes. The results of the exergy analysis are placed in the context of recent developments in energy market liberalization and of the need to achieve environmental sustainability. They are also contrasted with proposals for new or improved energy technologies to meet the requirements of a sustainable energy strategy. Finally, the role of the exergy method is contrasted with the various other approaches to energy technology assessment.