Electricity price dictated by the wholesale cost of gas 18 January at 3:16PM in Energy 8 replies 432 views

Redscope77

I understand the cost of our electricity is driven by the wholesale gas market.

Electricity in the UK is generated via a mix of GAS, Nuclear, Renewables etc etc.

According the national grid website, gas accounts for around 40% the electricity generated, IE 60% comes from much cheaper to generate sources.

Why can't energy firms calculate our electricity bills based on proportioning the cost of electricity according to the National Grid stats.  IE 40% at one rate per kWh and the remaining 60% at a different  rate per kWh.

SnakePlissken

Redscope77 said:

I understand the cost of our electricity is driven by the wholesale gas market.

Electricity in the UK is generated via a mix of GAS, Nuclear, Renewables etc etc.

According the national grid website, gas accounts for around 40% the electricity generated, IE 60% comes from much cheaper to generate sources.

Why can't energy firms calculate our electricity bills based on proportioning the cost of electricity according to the National Grid stats.  IE 40% at one rate per kWh and the remaining 60% at a different  rate per kWh.

In Scotland its even lower, for last 2 weeks minimal gas was used with North of Scotland grid being 100% renewables most days. Even today with lower wind, its 60.8% renewables and 30.2 from gas.

For whole of Scotland figure its 73.6% renewables and 15% from gas.

Useful link that gives all of UK usage by generation type or drill into countries of UK or areas of the UK  countries. And also shows carbon usage.

https://electricityproduction.uk/

pochase

Because that is what they are paying for the electricity. They don't make anything up.

doodling

Hi,

Because electricity is generated by lots of different companies that complete with each other and each have their own separate desires to make a profit.

All electricity on the spot market has the same value, no matter how it is generated.  If electricity isn't generated by wind then it will be generated by gas - that makes electricity generated by wind just as valuable as electricity generated by gas and it is therefore sold at the same price.

Note that not all electricity is sold on a spot basis so things are not quite so clear cut in general.

InvertedVee

This might help... https://forums.moneysavingexpert.com/discussion/comment/79749678#Comment_79749678

Redscope77

I'm not sure this does help me to understand it.    It basically is says the grid buys energy at the highest generated price regardless of the source, and it does this so all energy generators turn a guaranteed profit.  

It seems totally daft to me.  Imagine if you have the choice of buying the exact same bag of shopping from two different suppliers.  One bag costs £50 and the other costs £100.   You chose to purchase the £50 bag of shopping, but due to "the rules" you still have to pay £100 for it which is totally ludicrous.

Nothing I have read so far has convinced me the system is fair.  What it has convinced me of is we are all paying over the odds for at least 60% of our energy usage. 

Am I missing something????

Ectophile

Redscope77 said:

I'm not sure this does help me to understand it.    It basically is says the grid buys energy at the highest generated price regardless of the source, and it does this so all energy generators turn a guaranteed profit.  

It seems totally daft to me.  Imagine if you have the choice of buying the exact same bag of shopping from two different suppliers.  One bag costs £50 and the other costs £100.   You chose to purchase the £50 bag of shopping, but due to "the rules" you still have to pay £100 for it which is totally ludicrous.

Nothing I have read so far has convinced me the system is fair.  What it has convinced me of is we are all paying over the odds for at least 60% of our energy usage. 

Am I missing something????

Yes.  The desire of the wind farm operators to make as much profit as possible from their investment.

Suppose you own a wind farm, and it's a windy day, so you're generating lots of electricity for very little cost.

How much do you offer to sell that electricity for?  Only a fraction cheaper than the gas fired power station down the road is asking.  Why drop the price any lower than that?

We don't have enough wind power to supply the entire country, so the wind farm operators have no need to compete with each other.  They are competing with the fossil fueled suppliers.

macman

Redscope77 said:

I'm not sure this does help me to understand it.    It basically is says the grid buys energy at the highest generated price regardless of the source, and it does this so all energy generators turn a guaranteed profit.  

It seems totally daft to me.  Imagine if you have the choice of buying the exact same bag of shopping from two different suppliers.  One bag costs £50 and the other costs £100.   You chose to purchase the £50 bag of shopping, but due to "the rules" you still have to pay £100 for it which is totally ludicrous.

Nothing I have read so far has convinced me the system is fair.  What it has convinced me of is we are all paying over the odds for at least 60% of our energy usage. 

Am I missing something????

What you are missing is that nobody is going to sell you the bag of shopping for £50 if they can sell it to someone else at £100. It's an international market: we both import and export electricity depending on both supply and demand.

InvertedVee

Redscope77 said:

I'm not sure this does help me to understand it.    It basically is says the grid buys energy at the highest generated price regardless of the source, and it does this so all energy generators turn a guaranteed profit.  

It seems totally daft to me.  Imagine if you have the choice of buying the exact same bag of shopping from two different suppliers.  One bag costs £50 and the other costs £100.   You chose to purchase the £50 bag of shopping, but due to "the rules" you still have to pay £100 for it which is totally ludicrous.

Nothing I have read so far has convinced me the system is fair.  What it has convinced me of is we are all paying over the odds for at least 60% of our energy usage. 

Am I missing something????

It's market economics, so 'fair' doesn't really come into it I'm afraid.