The ups and downs (but mostly ups) of electricity prices

At the time of writing it's less than two weeks until October 2025 when the Ofgem energy cap will rise by a further 2%.

In a chaotic political landscape the renewable energy industry has become somewhat of a scapegoat, a quick point scoring exercise which unites those sceptical about the benefits with one dimensional arguments such as "it's not always sunny/windy", or the amount of energy hitting the UK surface is too limited to make any difference.

The reality of course is more nuanced, blaming renewables for higher prices has very little weight due to the market structure for marginal pricing.

Presently the UK uses a wholesale market where the most expensive unit of electricity sets the price for all. So even if Solar and Wind produce at near zero cost, if a gas plant is needed to balance demand, the high gas price applies to all units sold. Since the UK still generates a large share of electricity from gas-fired power stations and it is gas which tends to be the "marginal generator" or highest priced option, this has been particularly volatile due to reliance on gas imports in the context of global problems, invasions and general unrest.

This aside there is also a revolution underway which electrifies more of our day to day lives via travel, heating and general advancements in technology which put pressure on upgrading and maintaining the grid which adds further costs. Additionally the UK imports electricity via interconnectors from France, Netherlands, Norway on top of being heavily expose to global gas markets, and when the pound is weaker these costs go up.

Whilst it is true that environmental levies do fund renewables and these make up a portion of bills, the vast majority of volatility is driven by wholesale costs. The merit order effect is a concept whereby generators are dispatched in order of their marginal cost, so that if cheaper sources like wind and solar go first due to lower cost, with more expensive sources like gas and coal only deployed when demand is higher or when no other options exist.

What we see in practice is that during peak renewable generation the expensive plants are pushed out of the stack which lowers the market clearing price.

Amongst all the noise around renewables what we often end up with is a "Nirvana Fallacy" which rejects progress because it doesn't deliver a perfect fix immediately, rather than accepting change and adaption is a gradual process of which great progress has already been made.

Solar remains the cheapest form of energy that most businesses can deploy and enable a fixed price at a fraction of market rates, book a consultation if you'd like to discuss this more; info@herdenergy.co.uk , 01165 046588.