Analysis suggests that household bills in the United Kingdom have increased by 7.2 billion pounds over the past two years due to the way electricity prices are set. Energy providers, regardless of how electricity is produced, pay the highest wholesale price under existing regulations.
The most expensive way to generate electricity is through gas-fired power plants, but only about 40% of homes in the UK use them. According to the Carbon Tracker Initiative, this means that homes pay more for power generated in other ways than they should.
According to the non-profit climate think tank, the UK’s electricity bill could be significantly lower if an average price was used instead. According to the Department for Business, Energy, and Industrial Strategy (Beis), it has already launched a major review of the electricity market to radically cut costs for customers over the long term.
A bidding process determines the wholesale electricity price, with each generator stating its willingness to pay for a unit of power. According to Beis, the wholesale cost is close to zero when it is windy and sunny enough to meet demand for renewable energy.
According to the Carbon Tracker Initiative, charging an average price for wholesale electricity would have reduced the bill by 7.2 billion pounds in the two years from 2021 to 2022. That amounts to approximately 250 pounds per household, according to BBC calculations.
Companies that produce renewable energy have been paid significantly more for their power than what it costs them to generate under the current system. As a result, in January 2023, the UK government imposed a temporary 45 percent tax on what it called extraordinary returns from low-carbon electricity generators.
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