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Comment by ascari | Hacker News Reader

Except that the UK has one of the most expensive electricity prices in the world

If I'm remembering correctly, it's because the previous government set the price floor to the average natural gas price, artificially propping up their north sea oil & gas industry that's been noncompetitive for decades. Even though they can make cheap energy, consumers get screwed because of national security concerns.

Unfortunately I don't have a source, and would appreciate a UK national with better understanding than me to chime in :)

Pretty much all electricity markets worldwide set the unit price based on the the cost of the "marginal" (most expensive) generator running during each time period. It's a weirdly common misconception that the UK is unique in doing this.

If you paid generators what they bid, then they're incentivised to manipulate their bids to try and make the most money, distorting the market.

Almost all the wind farms and many solar farms in the UK operate under the "contract for difference" system, where they're guaranteed a fixed price per unit and have to pay back any income above that. So a lot of the money paid is clawed back through that method.

The reason the UK's electricity has been expensive over the last few years comes down to:

  - Shutdown of several nuclear plants without any replacement
  - Shutdown of coal plants and replacement with gas
  - The Ukraine war affecting gas prices
  - Clean energy surcharges on bills (which hit electricity bills a lot harder than gas bills, regardless of how clean the electricity is...)

There will be a bunch more renewables coming online soon which will hopefully start crowding out gas and driving the price down more regularly, so hopefully prices will start dropping faster soon.

>Pretty much all electricity markets worldwide set the unit price based on the the cost of the "marginal" (most expensive) generator running during each time period

Indeed. This is inherent failing of the use of auctions for setting price. While using auctions is a laudable goal, in reality it is not very efficient and easily gamed. Having a central purchaser model is not idea from a ideological standpoint but clearly more efficient allowing correctly controlling for more variables than can (crudely) be transmitted through a 30 minute auction period.

Enron made a ton of money gaming energy auctions until it all fell apart.

https://www.marketplace.org/story/2021/09/30/20-years-later-...

The only reason the wind farms got built was because they got guaranteed a high price of electricity that took the risk out of it. This changed more recently which is why building stopped.

Another factor is in the UK everything below the average tide line is owned by the Crown (as in the King not the government) who were very happy to get lease income. The Govt was also happy so it didn't look like the people were funding the King (which they are).

Also the public are very against wind turbines on land which is reasonable in England where there isn't much isolated land to put them.

At least they got built, which is more than can be said for the nuclear plants.

https://www.electricitybills.uk/ shows a breakdown of the components of consumer energy bills. It's not as simple as saying "it's expensive because of gas", though pricing based on the marginal production cost is one component.

Thanks, interesting. The price almost doubled between 2021 and 2022. Has been coming down since.

Related - "The UK is wasting a lot of wind power" from 2023. https://archy.deberker.com/the-uk-is-wasting-a-lot-of-wind-p...

https://news.ycombinator.com/item?id=34358795

That has two causes, dependency on natural gas, which would be worse without renewables and taxes, which is unrelated to renewables and related to general policy goals of reducing energy demand.

Also even in a European context UK power prices aren’t as high as many of its peers.

Germany is even more expensive.

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