SEPTEMBER 7, 2022
tags: Electricity
By Paul Homewood
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Although rising international prices for natural gas have triggered the massive rise in wholesale electricity prices in the last year or so, they are only directly responsible for part of that rise.
As I have explained before, it is usually gas-fired generation that sets the wholesale price of electricity, which in August averaged £382/MWh:
https://www.catalyst-commercial.co.uk/works/september-2022-energy-market-brief/
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As a result of this broken market, non-gas generators are making obscene windfall profits, with the exception of those on CfDs, which receive a fixed price. These generators produced 131 TWh last year, accounting for 45% of total generation:
Type TwhWind48Solar7Bio21Coal7Nuclear41Hydro7
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At a price of £382/MWh, compared to a historic price level of around £50/MWh, these generators are raking in an incredible £43 billion. It is true that some generators may have Power Purchase Agreements in place at less than current prices – but this simply means that the purchaser is making the windfall instead. Either way electricity consumers are paying the cost of this on their bills.
The second major issue is the Carbon Price, which has more than doubled since last year and continues to rise>
https://www.catalyst-commercial.co.uk/works/september-2022-energy-market-brief/
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The purpose of the Carbon Price is to increase the cost of fossil fuel generation, and thereby encourage the transition to renewables. However reports indicate that the wholesale price of natural gas will be capped, presumably at a much lower price than it is now. It is quite perverse therefore to then add back costs via the Carbon Price onto gas generators.
Based on my earlier calculations, the current Carbon Price of £92.65/tonne is adding £35/MWh to the cost of gas generation, and hence onto the wholesale electricity price. This translates to nearly £5 billion of windfall profit for non-gas generators.
The whole Carbon Pricing system should be suspended until further notice. As I understand it, that would need the unanimous agreement of devolved governments. Given the loons running Scotland and Wales, I would not hold my breath!
