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Public procurement of electricity could save GB households £200 a year, says thinktank
TL;DR
Households in England, Scotland, and Wales could save nearly £200 annually on energy bills if the government acted as the sole buyer of electricity, according to a thinktank. This public procurement approach could significantly reduce electricity prices by billions of pounds.
Key points
- Households could save nearly £200 a year on energy bills
- Government acting as the sole buyer could reduce electricity prices
- Current prices are set by volatile gas costs
- Renewable energy use is increasing but benefits are not felt by consumers
- Market structure is a barrier to a low-carbon future
Households in England, Scotland and Wales could save nearly £200 a year on their energy bills if the government stepped into the market to act as the sole buyer of electricity, according to a thinktank.
The research found that public procurement of electricity, meaning the government would become the “single buyer” of power before it is resold to consumers, could shave billions of pounds from electricity prices.
Currently, power prices to consumers are set by the cost of gas, which can be highly volatile. Average energy bills are to rise by more than £200 in July because of the impacts of the Iran war, which has driven up gas prices.
Although the UK’s increasing use of cheaper renewable energy should bring prices down, the current structure of the market allows gas generators to set the wholesale price for all so consumers do not feel the benefits.
In a report for thinktank Common Wealth, Donal Brown, a senior researcher in energy policy and political economy at the University of Oxford, said: “Britain’s electricity market was designed for a fossil fuel age and it’s now a key barrier to a lower cost, low-carbon future.”
“Gas still sets the price for 80% to 90% of the time, while generating only a quarter of our power. This funnels billions in windfall profits to private generators, while UK homes and businesses pay some of the highest bills in the world,” Brown said.
The government is under growing pressure to tackle the cost of electricity after the war in Iran caused a global surge in oil and gas markets, creating the second energy price shock in four years.
But experts have warned that proposals set out earlier this year to de-link gas and electricity prices would lead to only modest savings for consumers, unless a more radical approach is taken to reforming the market.
Under the thinktank’s plan to limit the impact of expensive gas generation, the government would effectively buy all the power generated in England, Scotland and Wales through contracts offered by a publicly accountable body to generators.
Gas-fired generators would join a “strategic gas reserve”, whereby generators would be paid to step in when renewables were producing less or nuclear reactors were offline, according to the research.
Q&A
How much could UK households save on energy bills with public procurement?
UK households could save nearly £200 a year on their energy bills if the government became the sole buyer of electricity.
What is public procurement of electricity?
Public procurement of electricity means the government would act as the single buyer of power before reselling it to consumers.
Why are current electricity prices in the UK high?
Current electricity prices are high because they are set by the volatile cost of gas, which has been impacted by factors like the Iran war.
What changes are needed for a lower cost, low-carbon electricity market in the UK?
The current electricity market structure, designed for fossil fuels, needs reform to facilitate cheaper renewable energy and lower costs for consumers.
