Breaking the link
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Britain is generating more cheap green energy than ever before, but our bills are still going up. What’s going on and how can we fix this to lower energy bills for good?
Our founder, Dale Vince, has long been advocating for 'breaking the link' between the whole sale price of gas and electricity and now the latest report from The Green Britain Foundation explains how we can do it.
What the report found is shocking: Britain’s energy market is broken and it’s costing us all hundreds of pounds every year.
What is the ‘link’?
We have a bizarre system for setting the price of electricity in this country. It’s tied directly to the price of the most expensive source on the grid, which is almost always dirty fossil gas.
What this means is that even cheap green electricity (generated by the wind and the sun at a fraction of the cost of gas) has to be sold at the price of electricity generated by fossil gas.
This system cost the average household an extra £367 in 2023 alone.
Even worse, despite generating over 40 percent of our energy here in Britain using green sources, we have no control over the price. The cost of gas – and therefore all electricity - is set by international markets and can fluctuate wildly as we saw in 2022.
Cheap green electricity
When we talk about green energy being cheap, we’re not joking. The average cost of wind and sun power is already lower than fossil fuels and it’s getting cheaper all the time.
From 2010 to 2023, the cost of generating electricity from the sun fell by 90 percent to become 56 percent cheaper than the cheapest electricity made by fossil fuels.
Wind is the same. Over the same period, the cost of electricity made by offshore wind fell by 63 percent, while onshore wind costs fell by 70 percent. In 2023, offshore wind was 25 percent cheaper than fossil fuels, while onshore wind sources like our windmills were 67 percent cheaper!
Why are we still paying such high bills?
It’s a really good question. The answer lies in the way that the price of wholesale energy is calculated in Britain. Energy generators bid to supply energy to the grid to meet demand. When enough energy is supplied to meet the current demand, every generating company is paid the price of the most expensive bid.
This means that it’s typically the price of gas that determines the price we pay for electricity because Britain doesn’t yet have enough renewable energy capacity to meet 100% of the demand. As a result, we get no financial benefit from the growing cheap supply of renewable energy.
Why the government’s current plans won’t work
The government is aiming to “cut bills by £300 on average and deliver real energy security” by decarbonising the electricity system to be 95 percent green by 2030. But as long as any gas is used to generate electricity for the grid, the cost won’t go down.
The government is currently looking at two ways of reforming the wholesale electricity market:
Zonal pricing – this would split the market geographically with costs based on the circumstances of each zone. Bills would go down for some people but up for others, without addressing the link to gas prices. You can read our blog on zonal pricing here.
Reformed national pricing – this would tweak the way the current model works by altering transmission charging and balancing incentives, but not address the link to gas prices in any way.
The solution is simple
The only way to pass on the savings and security that green energy offers is to reform the wholesale markets and break the link.
We can do this by moving to a ‘pay-as-bid’ system where electricity generators bid to supply the grid and are paid the amount they bid. Instead of linking the cost of electricity to gas prices, this system would link it to the cost of generation, which is much cheaper for green energy.
The Breaking the Link report shows how this would have eased the pain of the peak energy crisis years, saving households £397 over 2022-24.
It would also secure our future. If another global energy crisis comes along, breaking the link would save households £356 in 2025 and £741 in 2030.
We can get to 100% green energy. We can slash bills. We can become energy independent – for real. But only if we break the link.
Read the full Breaking the Link report here
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