By Paul Homewood
While some of the recent energy price spikes have been attributed to international market factors, it is partly a direct result of government policy.
I mentioned the role carbon pricing played a few months ago in driving up electricity prices. Since then, the price of carbon has climbed even higher to £84.50 a tonne. Two years ago they were trading at less than £15/ton (through the EU scheme):
https://www.catalyst-commercial.co.uk/business-energy-reports/
This increase was deliberately designed by the government, to push up the cost of fossil fuel production to make expensive renewable energy competitive.
The policy also aims to track the EU’s carbon price, which has also skyrocketed over the past two years.
A typical CCGT plant emits about 374kg of carbon dioxide for every KWh generated, assuming an efficiency of 53%. As a result, a £84.50/ton carbon tax would add around £32/MWh to the cost of gas production.
Since the wholesale cost of electricity is currently £208/MWh, this represents a large portion. Because of the way the electricity market works, this extra cost is carried over to all power generation sources, not just gas, as CCGT plants tend to price the market as they are near-term generators. record. The report below explains:
So the end consumer has to pay this £32/MWh for all of their electricity, yielding a return on all low-carbon generators.
When UK Emissions Trading Scheme was introduced last year, redundancy was included to contain costs and prevent market volatility during emergencies. Permitted actions include flooding the market with additional licenses.
With the current severe energy crisis upon us, this regulation should be activated immediately.
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