The Government's Review of Electricity Market Arrangements consultation closed on 10 October1. Among the issues it covered was how the cost of electricity is determined1.
The End Fuel Poverty Coalition, an independent campaign group, responded to the consultation with a call for reform that it says must harness the benefits of net zero, reduce the risk of price volatility and deliver a secure supply to consumers1. The group states that the consultation closed on 10 October1.
Under the current system, the energy market is underpinned by marginal pricing, meaning the price per unit of electricity in kilowatt hours is set by the last energy source delivered onto the grid to meet demand in any given half hour period1. In practice this is often the cost of electricity from gas power stations rather than renewable energy, even though renewables make up the biggest proportion of the energy mix at 38.7 per cent and are nine times cheaper than gas-fired power stations, according to the Coalition1.
The Coalition's response urged the Government to unlink the cost of energy from gas1:
"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."
The group said it supports reforms to the marginal pricing system provided the Government devises a mechanism that ensures a reduction in consumer costs and maintains consistency of supply1. It also said the Government "must ensure the needs of vulnerable consumers, and those already in fuel poverty, are better accounted for in these plans"1.
The response calls for decarbonisation of the energy grid, security of supply and lower costs for consumers, and states that demand must always be matched by supply, particularly for vulnerable consumers such as isolated rural communities and those relying on life saving medical equipment1. It also calls for measures to avoid continued reliance on fossil fuel backups to meet peak demand by improving the UK's energy storage capacity1.
Why it matters for households
The price a household pays for each unit of electricity is currently set by the most expensive source needed to meet demand in a given half hour, which the Coalition says is often gas1. That links household unit rates to volatile fossil fuel prices even when cheaper renewables are generating1. The consultation therefore covered the mechanism that sits behind the unit rate on a domestic bill, which is central to a home's energy independence: how far a household's costs are exposed to imported fossil fuel prices rather than to the generating mix on the grid1. The Coalition's response also raises security of supply, noting that demand must always be matched by supply, including for households in isolated rural communities and those depending on life saving medical equipment1. The outcome of the review has not been reported.
What happens next
The consultation closed on 10 October1. No date for the Government's response to the consultation has been reported. The energy consultations process sets out how proposals of this kind move from consultation to decision, and further regulation and policy developments will determine whether marginal pricing is changed.
Sources1 cited
- Electricity markets must be fairly priced for consumers - End Fuel Poverty Coalition, endfuelpoverty.org.uk