Gas used as cost basis for charging customers

zathrasB5

I wonder if someone out there can help me?  I seem to remember when the Ukraine war started and energy priced rocketed there was noises coming from the government that they would look into how energy costs were calculated.  If I remember rightly the argument was that suppliers get to charge on the most expensive supplied type of energy - natural gas.  However I think that now over half our energy comes from green sources (if you class cutting down half the trees in Canada to burn in power stations as "green"), this was being viewed as being unfair.  So the government was going to take a look at this.  And now its gone very quiet.  Can anyone give me an update on what happened with this?  Thanks

MattMattMattUK

zathrasB5 said:

I wonder if someone out there can help me?  I seem to remember when the Ukraine war started and energy priced rocketed there was noises coming from the government that they would look into how energy costs were calculated. If I remember rightly the argument was that suppliers get to charge on the most expensive supplied type of energy - natural gas.

When used for electricity generation, somewhat simplified, but yes. 

zathrasB5 said:

However I think that now over half our energy comes from green sources (if you class cutting down half the trees in Canada to burn in power stations as "green"), this was being viewed as being unfair.  So the government was going to take a look at this.  And now its gone very quiet.  Can anyone give me an update on what happened with this?  Thanks

There has been no update, the government made a lot of bluster but realised that it was not quite as simple as their media announcements made out. Long term fixed supply contracts are already in place, but beyond that it would be impossible to say one generator gets X per mWh and another gets less, or that the price is Y until a demand threshold is reached and then the generator, they would all just hold out until prices rose. 

Scot_39

Energy - at the wholesale level is a complex mix of

live market - where gas dominated much of the pricing

advanced fixed supply deals

contract for difference contracts for new renewables and nuclear post Hinkley C (not yet generating - so not part of the £16 premium penalty - thats all renewables - vs £60 saving we had in cap at gas peak levels)

Chances are someone at BEIS as was (split 3 ways - so DESNZ ?) might still be looking into it.

But when Ofcom cap dropped below old EPG, things like EBSS return went off the main poltical agenda - and with electricity rates - forcast to be falling to c£1600 +/- (still, but then only, a third above levels c2 years ago - ) - energy prices are a lot less politicised then they were.

Politicians don't like to be reminded how little power they hold - as they were when older renewable suppliers refused revised contracts - forcing the govt to impose the pseudo windfall tax (on higher priced sales only - not total profit).

And suspect likes of Sunak and Starmer have more pressing issues on their mind in an election year.

doodling

Hi,

I suspect they discovered that their aspiration wasn't economically possible.  The spot electricity market is in principle about as perfect a market as you can get - it is inevitable that prices will be set by the most expensive supplier (because there is no incentive to be the cheapest and a certain amount of energy has to be bought at any given time).

This will continue until either the market changes significantly (difficult to see how without making electricity more expensive) or something else replaces gas's role as the source of power which is used to top up the supply after everything else has been bought  - if we're unlucky it could be hydrogen, which will make gas look cheap.

Note that the above is all about the spot market.  Long term contracts (which are how much of our electricity is bought and sold) work outside that market and are driven my other factors (e.g. certainty has a value to both buyer and seller).