UK’s uniform pricing is intended to ensure renewables are artificially profitable, incentivising more production. In most other countries, suppliers charge competitive rates, and brokers buy on an open market. This allows demand-based generators (like gas) to charge more during high demand periods (when wind isn’t blowing and sun isn’t shining). The flip side of this is that prices crater during high wind and sun periods. This leads to volatility which can be smoothed with futures contracts. The net effect is that renewables become less profitable, but consumers pay a lot less for electricity.
The UK needs to restructure their energy market to better align with the rest of Europe. It would significantly reduce prices for everyone.
While I agree that energy-intensive businesses should always be pushed onto flexible-pricing contracts, as a private consumer, uniform pricing is an advantage imo. You don’t need to think about whether running the washing machine will cost you 0.2¤ or 0.6¤ or whether there’s a price surge, and it’s even more expensive.
Keeping renewables a good investment also has its merits, in terms of hopefully higher buildout speed. Albeit, the most cash-focused investors aren’t necessarily the kinds of high-minded people you’d want on those projects; which in turn may create public anger at e.g. new wind farms. And in purely monetary terms, this is also primarily benefitting the rich at the expense of the poor.
While I agree that energy-intensive business should always be pushed onto flexible-pricinv contracts, as a private consumer, uniform pricing is an advantage imo. You don’t need to think about whether running the washing machine will cost you 0.2¤ or 0.6¤ or whether there’s a price surge, and it’s even more expensive.
Fixed pricing happens in Europe too. The retailer prices the volatility into a fixed pricing plan. It still ends up much cheaper than how the UK has structured their grid, which ensures electricity companies are making massive piles of money.
Well spotted. The difference between the UK and the rest of the EU is that the latter relies more heavily on contracts for difference. Renewable projects and installations negotiate a strike price up front (and often on an ongoing or scheduled basis). If the highest bid price (e.g. gas) exceeds the strike price, the renewable installation repays or foregoes the difference. The UK is very slowly moving in this direction, but has been criticised for its lack of action on older installations (which retain their direct pricing mechanisms), and slow pace of change for newer installations.
This is compounded by the UK’s comparative lack of EU interconnections which help these other countries smooth out volatility. By, for example, relying more on France’s nuclear power generation. This means the UK more frequently sees high clearing prices.
Oh well. PV installations up to 99kWp in Germany also gets fixed rates for 20 years (e.g. most home installations get ~8c/kWh).
Beyond that, you do have the same licensing/backward auction/strike price thing you mention. It didn’t use to be that way though - the auction/licensing scheme was introduced as part of the “breathing cover” regulation by the conservative coalition around 2015. It was introduced specifically to slow down renewable growth, or in less kind terms: to keep Good German Lignite and Cheap Russian Gas energy in the grid longer. While it wasn’t nearly as effective as intended, that is only because prices for PV and wind installs came down very quickly.
And indeed, since 2022, operators also need to forego 90% of the strike-price/bid-price difference, as an outcome of the gas price crisis.
By, for example, relying more on France’s nuclear power generation
On a related note, France’s reliance on aging nuclear reactors that it isn’t competent enough to replace, despite a significant ideological investment in nuclear technology has a decent chance of biting its neighbor countries in the bum too. :)
UK’s uniform pricing is intended to ensure renewables are artificially profitable, incentivising more production. In most other countries, suppliers charge competitive rates, and brokers buy on an open market. This allows demand-based generators (like gas) to charge more during high demand periods (when wind isn’t blowing and sun isn’t shining). The flip side of this is that prices crater during high wind and sun periods. This leads to volatility which can be smoothed with futures contracts. The net effect is that renewables become less profitable, but consumers pay a lot less for electricity.
The UK needs to restructure their energy market to better align with the rest of Europe. It would significantly reduce prices for everyone.
Britain looked at this and concluded: Brexit
While I agree that energy-intensive businesses should always be pushed onto flexible-pricing contracts, as a private consumer, uniform pricing is an advantage imo. You don’t need to think about whether running the washing machine will cost you 0.2¤ or 0.6¤ or whether there’s a price surge, and it’s even more expensive.
Keeping renewables a good investment also has its merits, in terms of hopefully higher buildout speed. Albeit, the most cash-focused investors aren’t necessarily the kinds of high-minded people you’d want on those projects; which in turn may create public anger at e.g. new wind farms. And in purely monetary terms, this is also primarily benefitting the rich at the expense of the poor.
Fixed pricing happens in Europe too. The retailer prices the volatility into a fixed pricing plan. It still ends up much cheaper than how the UK has structured their grid, which ensures electricity companies are making massive piles of money.
Thanks! I noticed I don’t know how it works in the UK. Is there a good article explaining it?
This one is pretty good.
Thanks! Tbh, it all looks very much like the German system, i.e. Merit Order and all that.
Well spotted. The difference between the UK and the rest of the EU is that the latter relies more heavily on contracts for difference. Renewable projects and installations negotiate a strike price up front (and often on an ongoing or scheduled basis). If the highest bid price (e.g. gas) exceeds the strike price, the renewable installation repays or foregoes the difference. The UK is very slowly moving in this direction, but has been criticised for its lack of action on older installations (which retain their direct pricing mechanisms), and slow pace of change for newer installations.
This is compounded by the UK’s comparative lack of EU interconnections which help these other countries smooth out volatility. By, for example, relying more on France’s nuclear power generation. This means the UK more frequently sees high clearing prices.
Oh well. PV installations up to 99kWp in Germany also gets fixed rates for 20 years (e.g. most home installations get ~8c/kWh).
Beyond that, you do have the same licensing/backward auction/strike price thing you mention. It didn’t use to be that way though - the auction/licensing scheme was introduced as part of the “breathing cover” regulation by the conservative coalition around 2015. It was introduced specifically to slow down renewable growth, or in less kind terms: to keep Good German Lignite and Cheap Russian Gas energy in the grid longer. While it wasn’t nearly as effective as intended, that is only because prices for PV and wind installs came down very quickly.
And indeed, since 2022, operators also need to forego 90% of the strike-price/bid-price difference, as an outcome of the gas price crisis.
On a related note, France’s reliance on aging nuclear reactors that it isn’t competent enough to replace, despite a significant ideological investment in nuclear technology has a decent chance of biting its neighbor countries in the bum too. :)