The government could save households and businesses £5.1 billion a year on their energy bills, as soon as 2028, by overhauling the electricity market to stop gas-fired power stations from ‘unfair profiteering’, a new report published today by Greenpeace UK has found.
The new research from policy consultancy, Stonehaven – which was commissioned by Greenpeace UK – outlines energy system reforms that would remove gas plants from the wholesale electricity market and place them into a strategic reserve. This would stop expensive gas from setting electricity prices, protect UK billpayers from gas price volatility and significantly lower bills.
Total household electricity bills could fall by as much as £1.7 billion a year by 2028, and by £3.3 billion for all businesses and industry under the proposed changes. This would save the average household £65 a year on their electricity bills, the average pub £850, and the average cafe £820.
Energy intensive industries also stand to make significant bill savings through the new model, with the iron and steel industry saving over £67 million a year, the chemicals industry £128 million and ceramics, glass, cement and other minerals £37 million.
Business savings would also likely be passed onto consumers, helping to lower inflation, further alleviating the cost of living crisis and making the UK more attractive for investment.
The report also highlights how removing gas plants from the wholesale market would shield UK households and businesses from gas price volatility, like those experienced during the recent energy crisis, which added an estimated £90 billion to UK gas bills between 2021 and 2024, equivalent to £1,300 per person.
As well as being essential to lowering energy bills and easing the cost of living, reducing the cost of electricity is also crucial to the success of decarbonising the UK economy. The government’s climate advisors, the Climate Change Committee (CCC), highlight that lower costs are key to speeding up the uptake of clean electric technologies, such as heat pumps and electric vehicles.
Greenpeace UK’s political campaigner, Angharad Hopkinson, said: “It’s absurd that we still allow expensive and volatile gas to set the price we pay for electricity.
“Renewable energy, like wind and solar, is cheaper than gas, its prices are far more stable, and we’re producing more and more of it every year in the UK. But because the energy system is rigged in favour of the gas industry – keeping prices and their profits high – our bills have soared and we’re not reaping all of the benefits clean power brings.”
“The government has a huge opportunity to take control of our energy by removing gas-fired power stations from the market and bringing them into a strategic reserve. This would stop the unfair profiteering of gas giants and start saving households and businesses vital money on their energy bills.”
Currently, the UK has some of the highest electricity prices in Europe, and also notably higher than in the US, with industrial electricity prices among the highest in the world.
This disparity is largely due to the UK’s overreliance on gas, which means the current ‘marginal pricing’ system for electricity gives gas-fired power generators unique power to dictate the price of electricity in the UK.
Gas provided just 30% of the UK’s total electricity generation last year, however gas-fired power stations set the wholesale price of electricity the vast majority of the time – 97% in 2021 [1] – enabling them to extract scarcity rents and push up energy bills.
The UK’s gas-dependent power generation can also lead to extreme profiteering, like when two gas plants were paid almost £18mn for generating just three hours worth of power during a cold snap, exploiting their ability to name high prices when supply is tight.
The report highlights that by moving to a Regulated Asset Base (RAB) system, administered by the National Energy Systems Operator (NESO), gas plants would no longer be able to sell power on the open market, instead providing a strategic reserve of electricity, at an agreed price, whenever they are required to fire up to meet electricity demand.
This model would ensure that gas plants get regular, stable returns – which could prove very attractive to many plant operators – while keeping energy costs for the rest of the economy steady and noticeably lower.
Adam Bell, policy director at Stonehaven, who was one of the report’s authors and the former head of energy strategy at the Department for Business, Energy and Industrial Strategy, said:
“Taking gas out of the power market is a radical step, but these are radical times. The Government has very few options to cut bills, and none with as high a return as our proposal. Rather than letting gas take part in another round of capacity auctions, it’s time for the government to put gas on the path to market exit.”
Also commenting on the report, Great Grimsby and Cleethorpes MP, Melanie Onn, who sits on the Energy Security and Net Zero Committee, said:
“We must show families up and down the country that the transition to renewables is as much about their pockets as it is about the planet.
“Put simply, a just transition is unachievable without consumers seeing in black and white the impact producing clean energy has on their bills. This report offers key recommendations to secure cheaper bills that are deliverable within a timely manner.”
Greenpeace is calling on the UK government to urgently introduce the energy market reforms set out in its report, which could be set up and delivered within two years without the need for new primary legislation, in order to help meet the government’s pledge to cut household energy bills by up to £300 a year by 2030.
Additional bills savings can be made via a range of other interventions, including moving policy levies into general taxation, extending the Contracts for Difference scheme to 25 years and improving energy efficiency.
ENDS
Contact: Greenpeace UK Press Office – press.uk@greenpeace.org or 020 7865 8255
Notes to editor:
Read the report – Power Shift: how the Labour government can bring down bills and bolster net zero by curtailing the power of gas
- 2021 is the latest year that data is publicly available on the share of each electricity generation type in setting electricity prices