The Energy and Climate Intelligence Unit (ECIU) published analysis on 18 November 2022 estimating that, from the start of the gas crisis until the end of the Energy Price Guarantee (EPG) in April 2024, gas will add £4,400 to the average household's energy bills1. The same analysis cites recent Government Contracts for Difference auctions, which secured 11GW of new wind and solar capacity at around a fifth (22%) of the current price of gas power generation, including 7GW of offshore wind at record low prices of £45/MWh in 2021 prices1.
The ECIU figures break the household cost down by fuel. High wholesale gas prices are predicted to add £2,499 to gas bills between the start of the crisis and the end of April 2024, while the additional expense of running gas power stations is set to have inflated average electricity bills by around £1,8951. The average household will pay £3,212 more because of the gas crisis, with the Government covering the remaining £1,181 under the EPG1. The analysis assumes an average household paying a dual fuel bill of £3,000 for the year from April 2023 to April 20241.
On the generation side, the ECIU states that renewable electricity generation has effectively resulted in more than 27TWh of gas not needing to be burnt in power stations so far this winter, equivalent to the gas needed to heat more than 2.9 million homes over the winter or more than 30 LNG tankers1. As part of the Contracts for Difference scheme, renewables are due to pay back £730 million in quarter four 20221. Gas was used to generate around 40% of the UK's electricity in 2021, and because gas sets the marginal price for all generation, electricity prices have also been driven up despite renewable electricity being cheaper than gas generation at present levels1.
The £45/MWh offshore wind strike price is compared in the analysis with a day-ahead wholesale price of around £260/MWh in the week of 18 November 2022, though the ECIU notes the day-ahead market may not reflect the price of gas bought in advance, which may be cheaper1.
"Recent Government 'Contracts for Difference' auctions secured 11GW of new wind and solar at around a fifth (22%) of the current price of gas power generation including 7GW of offshore wind at record low prices of £45/MWh (in 2021 prices, cheaper than even the pre-crisis price of gas generation)"
| Measure | Figure |
|---|---|
| New wind and solar secured in recent CfD auctions | 11GW |
| Offshore wind within that total | 7GW |
| Offshore wind strike price | £45/MWh (2021 prices) |
| CfD payments due back from renewables, Q4 2022 | £730 million |
| Gas not burnt in power stations this winter | More than 27TWh |
Why it matters for households
The gap between the £45/MWh strike price secured for offshore wind and the £260/MWh day-ahead wholesale price cited for mid-November 2022 is the mechanism behind the £730 million that renewables are due to pay back under the Contracts for Difference scheme in quarter four 20221. When wholesale prices run above the strike price, generators pay the difference back, and that money reduces the levy recovered from bills. The ECIU states that savings would be even larger if onshore wind and solar were deployed more fully, which polling shows 77% of the public support in their local area1.
For a household, the exposure described here runs through gas rather than electricity alone. Gas sets the marginal price for all generation, so the cost of gas-fired wind power on the UK grid displaces is reflected in electricity bills even when renewables are generating1. The ECIU's earlier analysis found that installing insulation to meet the Government's target of as many homes as possible reaching EPC C by 2035 would cut imports by three times more than gas from already approved North Sea fields over the period 2030 to 20351. From April 2023, 8.6 million households are expected to be pushed into fuel poverty, while £6bn of new funding for energy efficiency is not expected until 20251. The Conservative 2019 manifesto committed £9.2bn for energy efficiency over the course of this parliament1.
What happens next
The EPG runs until April 2024, the endpoint used in the ECIU's £4,400 figure1. From April 2023, the EPG will see the average household pay £3,000, up £500 from its current level, for energy bills for the year from April 2023, which the ECIU describes as around three times the pre-crisis energy bill1. The £6bn of new funding for energy efficiency is not expected until 20251.