Pilita Clark’s article “Gas, not net zero, has driven up UK power bills” (Opinion, March 19) offers welcome clarity on the UK’s power pricing. Building on it, the UK’s unique market structure and power generation supply stack (the so-called “merit order curve”) presents a real opportunity
for reform.
UK power prices are set by the cost of the marginal producer — typically, expensive natural gas, as the article notes, 98 per cent of the time.
Under the current system, all generators, regardless of their actual costs, receive the market price.
As a result, most low-carbon producers (wind, solar, nuclear — almost all with near-zero marginal costs) are enjoying excess revenues.
What’s missing from the public discourse is clarity on where these bumper profits go, which is either to the generator or to the government.
The implication is that while gas sets the price for consumers, it’s low-carbon generators and the Treasury that are raking in the cash.
To some extent, this is fair: after all, the government helped de-risk projects by guaranteeing a price, enabling the renewables industry to scale.
But it does mean, ironically, that those who profit most from fossil fuels setting the marginal price are, in fact, the non-fossil fuel producers.
It seems that the current approach suits low-carbon generators well.
Wind, solar and nuclear generators are not likely to want change that lowers profits, while you and I, as consumers, pay the price.
It’s time the public had a clearer picture. And time, perhaps, to consider whether excess revenues — whether to government or low-carbon producers — might be better redistributed. Not through blunt tools like tax cuts or price caps (which do little to curb demand), but through targeted hardship payments to struggling households.
Perhaps better, the much-discussed nodal pricing reform could be the fix. By breaking the national market into smaller regional ones, we could limit gas from setting the marginal price everywhere, confining it to regions where it’s actually needed.
British taxpayers would no longer have to pay wind producers to shut down on windy days (the notorious “negative pricing” problem), and gas would lose its stranglehold on electricity prices.
Renewable producers might not welcome a change to the rules of a game they’re currently winning — but it’s just this kind of reform that could be genuinely electrifying.
Mark Davis
Chief Executive, Capterio,
London WC1, UK
