Why have electricity prices risen?
In the Telegraph last week, Peter Lilley asked some very pertinent questions about Net Zero. This has prompted an absolute shocker of a response from the Energy and Climate Change Information Unit on Twitter. Almost nothing in the whole thread of their thread is true and much of it is grossly misleading. Rather than rebut the whole thing, however, I thought I’d focus on just one of Peter’s questions, and the ECIU response.
Q: "Why have UK electricity prices gone up nearly every year since we began the switch to renewables, now reaching levels twice as high as... competitors?"
A: Largest part of a bill is the wholesale elec prices, set by the most expensive generation unit needed to meet demand.
That's usually a gas-fired unit.
For an organisation that claims to have some expertise in the energy system, this is a fairly remarkable mangling of the truth. For while it is true that wholesale prices are the largest part of an electricity bill, and that wholesale prices are normally set by gas turbines, that’s only part of the story.
In particular, environmental levies – subsidies on wind and solar – are not part of the wholesale cost, and neither are the balancing costs, which renewables are driving up very quickly.
This can all be seen in the breakdowns of electricity bills that Ofgem publishes each year. The graph below takes the percentages from 2015 (the earliest year I can find) and 2021 (the latest), and applies them to the average electricity bill, as published by DESNZ in its Domestic Energy Prices dataset.
The increase in bills over this period is £109. And as the graph suggests, the biggest increase is in environmental levies. The contribution of wholesale costs is almost unchanged.
We can make the contribution of increases in environmental levies more explicit by lumping all the other categories together, and breaking down the £109 increase in a pie chart:
It’s clear that it is environmental levies that are causing the problem over this period. Now of course the story for 2022 and 2023 will be rather different, because of the Ukraine war, but for the ECIU to claim that it is gas prices that have increased bills is plainly misleading.
Addendum
After writing this post, I chanced upon an old Sky News article which has some older Ofgem data – from 2013 – but with some of the categories lumped together. However, the environmental levies percentage is still explicit, so it is possible to show that the breakdown of the increase is as follows:
