I have heard energy is generated from solar/wind/coal in the UK and this is where the most profit comes from but due to privatisation rules, companies cannot use this money to help consumer bills. Is this correct. I heard there is also a lot of energy piped in?
In: Economics
A lot of it still comes from natural gas power stations, but there has been a dramatic change over from coal fired power stations to wind generation, especially offshore wind and solar, UK also has nuclear power and hydroelectric and some other minor electricity generation from more unusual sources. There is some electricity trading with France , but it is more related to peak demand and electricity supply can flow in either direction so at times the UK may export electricity to France and at other times import it.
It has nothing to do with privatisation, in fact the UK energy regulations cap the price of energy, so the government effectively controls the price, not the private companies
The price is so high right now because most energy is imported from europe. When the Ukraine war started, Europe stopped getting cheap energy from Russia so the proces went up as supply reduced
Wind is a large and increasing source of energy in the UK, but the wind turbines and associated infrastructure is not cheap, so that doesnt help cut the energy costs
Solar/wind/gas/nuclear. No coal anymore.
We do import some energy but we also export energy, it depends on supply and demand for both us and neighbouring countries.
The companies COULD reduce consumer bills but when have you ever heard of a for profit company reducing prices? What incentive do they have to say “hey instead of paying ourselves bonuses this year we’ll reduce prices for the customers”?
We have a price cap on energy, which in theory should be the upper limit of what energy companies can charge. In reality almost all the companies just match their prices to the cap.
[https://www.greenmatch.co.uk/blog/energy-prices-europe](https://www.greenmatch.co.uk/blog/energy-prices-europe)
Broadly speaking, and unfortunately this can’t address your perception, the idea of “prices so high” is obviously going to be met with “compared to what?”
Prices have risen due to Russian sanctions, COVID, failures in the energy provider market in the UK etc etc. The link above presents comparative data for Europe and the UK’s energy prices are not that much above the European average and far from the highest in Europe.
The link below (wiki…) shows the breakdown of UK energy. Coal will be 0 next year (one guesses) since the last coal power plant was just shut down. Like pretty much all Western nations bar France, the UK likely should have had a bit more investment in nuclear power but there was a bit too much environmental trolling and fear mongering coupled with a bit too little political leadership 40-50 years ago.
[https://en.wikipedia.org/wiki/Energy_in_the_United_Kingdom](https://en.wikipedia.org/wiki/Energy_in_the_United_Kingdom)
1st 3 months of 2024 45.5% was generated from solar and wind and 50+% came from gas-powered plants.
The more volatile the market for gas the higher the risk for a supplier and that in turn provides less chance of a price drop. The biggest cause for the volatile market is the war between Ukrain and Russia: We in Europe started to cut ties with Russia but the alternatives can not provide gas as consistent and as cheap as Russia does/did.
Take a look at [gridwatch.co.uk](http://gridwatch.co.uk) it will show you upto to date info about how much energy the GB is using, how much we’re generating, and via which sources.
Uk energy comes from a mix of nuclear, renewable and fossil fuel energy generation. Some of which is imported (mainly from France I believe).
The energy companies are merely middlemen, taking the 4-7p a Kwh energy generated and “distributing” it, for that “service” you end up paying closer to 20p a Kwh, as a minimum. This is because private interests have had their hands in the pocket of the taxpayer since thatcher.
Free market in action my friend.
Primarily due to some short-sighted decisions which have created an overreliance on natural gas and left the UK more vulnerable than most to the effects of Russia’s Invasion of Ukraine
Just a few years ago, as much as 50% of the UK’s grid energy came from coal. There was a big big push to decarbonise, and coal is really dirty, so the UK started closing its coal plants and replacing them with gas ones (and some wind farms). It managed to reduce coal from 50% of the energy mix to 0% within just 6 years, which is pretty impressive, and combined with building the biggest offshore wind farms in the world, was pretty admirable in the name of climate action
However, that meant that natural gas was now the only major fossil fuel being used for grid energy in the UK, and it was incredibly reliant on it. There aren’t many countries where this is the case. Generally, other countries will have more diversification in their fuels
Then you need to add onto this that the UK uses gas for most things in the home too. Home heating, hot water, and cooking are generally all done with mains gas supply, whereas in other countries at least one of these things might be electric
So the UK uses a LOT of natural gas. In proportion to size, it uses more than almost any other country. So where does it get it all from? Well, actually, around half of it is produced domestically. The other half comes from abroad, mainly from Norway. Very very little ever came from Russia
So why did Russia’s invasion have such a big effect if the UK doesn’t even get any gas from them? Well, gas production in the UK is privatised (like in many countries), meaning that the companies who produce it can choose to sell it to the highest bidder globally. That means that when global gas prices rose dramatically due to the Russian invasion of Ukraine, the UK was still affected by it, despite not getting any gas from Russia and actually producing most of it themselves. Privatised gas production isn’t unusual, but it is unusual for a country that’s so reliant on it. You could nationalise it or impose an export ban, so that gas produced in the UK can’t be sold elsewhere, but this would have significant political and business consequences
This is compounded by the UK’s lack of gas storage capacity. Most countries that use a lot of gas have large reserves, which they can fill when the price is cheap and fall back on when the price is high, to ride out price spikes and events like the invasion. Unfortunately, the UK chose to close its only major gas storage facility in 2017 (during the transition from coal to gas!) due to maintenance costs. That meant they couldn’t ride out big price spikes and felt every little bump of volatility in the global markets. So when the invasion and energy crisis happened, this was bad news for the UK
So all in all, it’s just many short-sighted decisions which meant the UK needed gas more than other countries and was more exposed to the effects of the global market
TL;DR;
* lack of fuel diversification due to transition from coal to gas, creating overreliance on gas
* greater demand due to home heating, hot water and cooking all using primarily gas, exacerbating overreliance on gas
* privatisation of gas production means that the price of even domestic gas is determined by global markets
* lack of gas storage capacity, due to closing the only major facility in 2017, leaves inability to ride out price spikes and volatility of global markets
* Russian invasion of Ukraine creates energy crisis and highest gas prices in decades (maybe in history)
Interesting tidbit: the US has managed to get around the issue of an export ban by essentially deliberately limiting its logistical export capacity. This means you’re perfectly allowed to export gas from the US, but good luck doing so, because there isn’t enough export capacity for everyone. That means companies don’t bother trying to export it and just sell it domestically instead, making supply far greater and demand far lower, lowering the price and insulating the US from the impacts of global markets. So they have achieved the same effects of an export ban without much of the blowback
We are still reliant on gas to generate electricity and Russian sanctions have increased the price.
Cheaper sources of electricity cannot bring the cost down because in the UK the price of a unit of energy is decided by the highest cost producer.
If gas is the highest producer then all cheap energy from wind and solar must be sold at that price as well.
The only way we can reduce energy costs is to switch over from gas, which will take a lot of time and investment.
Hello, I work in energy research non-profit.
First; [here’s a breakdown](https://grid.iamkate.com/) of where the UK is getting it’s energy from. This is a live view.
As you can see, right now, it’s about 84% generated here in the UK and 16% coming from cables from Europe.
Of that 84% that’s being generated in the UK, you can see that 28% is fossil fuel from gas, 36% from wind and solar, and 20% from nuclear and biomass. This will change throughout the day and week – it fluctuates depending on what’s going on with solar/wind.
This is very interesting, but it doesn’t tell you much about why the prices are so high. There are two major factors to this. But first, we need to talk about how energy costs are determined.
Your energy bill is made up of about 70% wholesale price of energy, and 30% fees from your energy company. The 30% is just covering the company’s costs and profit etc. So let’s talk about the wholesale price.
Your energy company has to purchase energy from the national grid. How much it costs to buy from national grid is based on a rather unusual tiered pricing system.
The UK energy stem is designed to prioritise using renewables, and only switch on gas power plants when absolutely necessary. So, national grid are actively managing the country’s power use throughout the day and actively turning power plants on and off and re-routing power around to meet the country’s power needs. You can’t leave everything on all the time, or you generate power that has nowhere to go, and things start overloading and exploding.
If demand is low, and the UK’s demand for energy can be met by just nuclear and renewables, the price is relatively low. If demand is high, and national grid have had to turn on more power plants and generally do more work, the price goes up. This means the price changes constantly throughout the day.
So, what price should your energy company charge you for that wholesale power, if the price fluctuates throughout the day? Well, traditionally (I’ll get to it, reader who already knows where this is going), they use an estimate.
The energy company makes an estimate for how much it thinks power might cost you on an average day. Each energy company does their estimate differently (though all are overseen by OFGEM), but is generally based on historic rates and energy availability forecasting (e.g. do they expect to price to hike up soon?). This is how they get the rate for how much they’ll charge you per Wh – this is called a tariff.
So, your energy company is now charging you an averaged amount per Wh you use, which is based on an averaged/forecasted view of the *average* wholesale price of energy.
Complicated enough yet? I’ll respond to this comment with more info for the information-hungry…
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