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Electricity prices - what next?

AJJewsbury

Electricity prices look to be soaring. Seemingly the tariff I'm on isn't one of those covered by the government's price cap and it looks like the price per kWh for this coming year will be over 80% higher than a year ago. Presumably everyone else will see similar increases soon - when the price cap is next revised in April if not before - or even higher increases as the delay means their suppliers are even more out of pocket. Presumably gas prices will increase by even larger proportions.

It seems the recent inflation is primarily down to demand exceeding supply in the international wholesale gas market causing the price to rocket.

Because of the way the UK wholesale electricity market is organised, if I've understood it correctly, the most expensive generator needed at any point in time effectively sets the price for the entire market. One interesting consequence of this seems to be that those renewable/nuclear generators who have agreed a fixed 'strike price' with the convernment (which for recent wind was lower than the typical price for gas generated electricity) have to charge their customers the full market price, but can only keep the 'strike price' and have to return the remainder to the government/regulator. Effectively renewable customers are in a way subsidising fossil fuelled generation, rather than the other way around - which presumably wasn't the intention.

Hopefully things will stabilise a bit as winter passes - but what's the long term outlook?

"Reforms" to the wholesale electricity market to better protect the whole from changes in price of just one fuel?

An acceleration in the move from using imported fossil fuels for generation to more locally sourced energy (mostly renewables)?

A greater emphasis on demand reduction (more efficient appliances/lighting, significantly better insulation for buildings)?

More "time shifting" of demand - to times of day were there's non-gas generating capacity available?

Another look at minimising distribution "losses" - look again at BS 7671 appendix 17 perhaps?

   - Andy.

Parents

  • I don't see what the Government is supposed to do about it - we live in a free market economy.

    My gas has gone up by 47% and I haven't yet looked in detail at my leccy. I had fixed price/fixed term contracts and both suppliers went bust. The only contracts available now are the standard variable ones, which are capped until April. There is no longer any competition at all in the market.

    I think that quite simply, higher prices will lead to lower consumption. Some people will be more frugal (some people will have to be) but it will make energy-saving measures more cost-effective.

Reply

  • I don't see what the Government is supposed to do about it - we live in a free market economy.

    My gas has gone up by 47% and I haven't yet looked in detail at my leccy. I had fixed price/fixed term contracts and both suppliers went bust. The only contracts available now are the standard variable ones, which are capped until April. There is no longer any competition at all in the market.

    I think that quite simply, higher prices will lead to lower consumption. Some people will be more frugal (some people will have to be) but it will make energy-saving measures more cost-effective.

Children
  • in reply to Chris Pearson

    There's nothing "free" about the electricity market.  Most of the suppliers have ended up with either a subsidy or some price per MWh agreed by the government, without the consumers having any say in the matter.

    Then the energy suppliers will agree "contracts for difference" with the generators, which means that they effectively pay whatever price the two parties have agreed, whatever the wholesale price.

    The only reason all the suppliers are charging the same at the moment is that they are required by Ofgem's price cap to sell energy at a loss.  The big suppliers will have arranged many of their contracts with the suppliers months in advance, and so can ride it out until April.  The small suppliers have gone bust.

  • in reply to Chris Pearson

    The governments past and present have set the energy policies that have brought us to this decrepit point.

    They have put all the trust in Wind Turbines which for the last quarter of 2021 worked at 14% of there capacity due to light winds.

    Follow the link to the Global Warming Policy Foundation for clearer thinking of policy which hopefully will one day bring sense to those in charge.

    Home - The Global Warming Policy Foundation (thegwpf.org)

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