High Power Prices

How are GB electricity prices set?

Before answering why prices have behaved this way, I need to explain how power prices are set in the GB market. Roughly (there are complexities I won’t go into here), generators work out a price for each hour or half hour, above which they are happy to generate. Whatever price is needed to ensure meet the demand for that half hour sets the price. This process is known as the generation ‘stack’.

So, why have electricity prices behaved like this?

Now that is out of the way, we can start looking at why we’ve seen these price changes. This is often a question without an answer, but I’ll provide some possible reasons. Firstly, and I would argue most importantly, the electricity prices mirror the gas prices over the past two and a half years, as shown in the chart below (my source of day ahead NBP gas prices isn’t exact, but it gives the right picture).

Some Reflections

Reflection 1: Questioning the relationship between short term and long term prices

  • our system doesn’t work, or is rigged
  • we don’t have enough generation
  • things were in the 1960s when the electricity system was nationalised
  • we would be better off without interconnectors to other markets
  • we can’t afford to decarbonise

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Guy Lipman

Guy Lipman

Fascinated by what makes societies and markets work, especially in sustainable energy. http://guylipman.com. Views not necessarily reflect those of my employer.