Electricity markets must be fairly priced for consumers

The End Fuel Poverty Coalition has responded to the Government’s Review of Electricity Market Arrangements with a call that reform must harness the benefits of net zero, reduce risks of price volatility and deliver a secure supply to consumers.

The Consultation closed on 10 October and among the issues up for discussion was how the cost of electricity is determined.

Currently, the energy market is underpinned by “marginal pricing” – meaning that the price per unit (kWh) of electricity is determined by the last energy source delivered onto the grid to meet demand in any given half hour period.

In practice, this is often the cost of gas power station produced electricity, not renewable energy. Yet, renewables make up the biggest proportion of the energy mix (38.7%, BEIS) and are nine times cheaper than gas-fired power stations.

Therefore the Coalition’s response urged the Government to unlink the cost of energy from gas:

As the UK transitions away from fossil fuels, the cost of natural gas, coal and oil should no longer be the dominant factor in determining the price consumers pay for their electricity.

It is crucial that consumers reap the benefits of cheaper renewable electricity sources and no longer have their unit rates determined by volatile fossil fuel prices.

Therefore, we support reforms to the marginal pricing system as long as the Government devises a mechanism for ensuring this provides a reduction in consumer costs and maintains consistency of supply.

In its response, the Coalition welcomed plans to reform the energy market and the Government’s commitment to reliability and affordability.

However, the Coalition adds that the Government “must ensure the needs of vulnerable consumers – and those already in fuel poverty – are better accounted for in these plans.”

Given concerns about possible energy blackouts this winter, the consultation response calls for decarbonisation of the energy grid, security of supply and lower costs for consumers to ensure households are protected from wholesale price volatility. The Coalition added that:

Demand must always be matched by supply, particularly for the most vulnerable consumers such as isolated rural communities and those relying on life saving medical equipment.

The response calls for the Government to successfully utilise the UK’s extensive renewable energy resources and deliver them to consumers through the electricity grid so to help mitigate price volatility and ensure we have a more secure energy future.

Part of this is ensuring that the country harnesses the power of renewables like wind and solar. But the consultation response also calls for measures to avoid continued reliance on fossil fuel backups to meet peak demand by improving the UK’s energy storage capacity.