Electricity prices driving gas, study finds

New Delhi, September 6 (SocialNews.XYZ) Natural gas is the main driver of electricity prices in Europe. In the UK, in recent years, it has set electricity costs up to 84% of the time, despite providing far less than half of total electricity, confirmed a study published by the UCL.

As a result, revenues for energy companies have risen from around £15bn in 2019 to around double in 2021 and likely to over £50bn in 2022.

In two papers published on Monday, the researchers explain why, despite the advance of relatively cheap renewables, electricity prices have risen rapidly across Europe alongside the rising cost of natural gas.

They identify the structure of the wholesale electricity market as the main driver of excessive prices and develop solutions to address it.

Professor Michael Grubb (UCL Institute for Sustainable Resources), who is leading the research, said: “Fossil fuels used to be cheaper than renewable energy sources, but that has reversed with rising gas prices and the cost of producing renewables such as wind and solar power has dropped.

“Half of our electricity already comes from non-fossil fuels, and that figure is growing.

“If we were actually paying the average price of what our electricity costs today to produce, our bills would be significantly cheaper.”

The current energy crisis has driven retail prices up by more than 80% this year and quadrupled wholesale prices, fueling the “cost of living” crisis and inflation. Yet the UK already generates half of its electricity from non-fossil sources, including 25% from wind and solar, the costs of which have fallen dramatically to around a quarter of the costs currently seen on the wholesale electricity market.

But the structure of the UK electricity market means that these falling costs are not reflected in bills.

In their reports, the researchers explain how, as the most expensive generator needed to meet the latter part of demand, gas sets the price for all types of power generation technologies.

This happens even when most of the electricity is produced by cheaper renewable sources.

Professor Grubb explained: “While renewables provide more and more electricity, we still need natural gas to meet demand. The most expensive natural gas producers are still needed to cope with fluctuations of renewable energy production, so they set what is called the cost, at the limit of what is necessary.

“Because natural gas production is expensive, these producers charge the highest prices, which means other producers are also able to charge similar prices.a

The two documents are the first results of a research program led by UCL and supported by the Aldersgate group and the Institute for New Economic Thinking, which has resulted in a series of proposals for reforming the electricity market, decarbonization of the electricity sector and measures to reduce electricity. prizes to facilitate the electrification of the UK economy.

This will culminate in two major reports to be released in November 2022 and May 2023, which offer clear solutions to these issues.

Due to the urgency of the current crisis, researchers are publishing interim papers outlining the economic fundamentals of UK electricity market design; present the key principles of the reform; examine the income received by producers during the crisis; and presented a forward-thinking proposal for a “Green Power Pool”, which would decouple gas and electricity prices, allowing consumers to benefit from lower costs of generating renewable energy.

Source: IANS

Electricity prices driving gas, study finds

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