Richard Murphy
Why gas sets the price of electricity, and why the economics behind it makes no sense https://www.taxresearch.org.uk/Blog/2026/03/17/why-gas-sets-the-price-of-electricity-and-why-the-economics-behind-it-makes-no-sense/
Why gas sets the price of electricity, and why the economics behind it makes no sense

The way electricity prices are determined in the UK is widely misunderstood. Many people assume the price reflects the cost of producing electricity from the cheapest available sources. It does not. Instead, the price is commonly determined by the most expensive generator required to meet demand, which, in the UK, is...

Funding the Future
Mar 17 at 7:05amWeb
Show threadChristine Burns MBE 🏳️‍⚧️📚⧖1d ago
@RichardJMurphy There appears to be a mysterious force stopping Ed Milliband from altering this. Regional pricing would have been a step in the right direction, heavily favoured by energy retailers like Octopus, but it was not to be. Is it the Treasury? Is it fear that the fossil generation sector would hold the system to ransom (in which case the answer would be to nationalise them). In fact is it not obvious that it could be immediately solved by nationalising generation?
Show threadbovaz1d ago
@christineburns @RichardJMurphy the secret is that nationalizing generation and distribution would solve a lot of this, but "OMG Socialism" I guess.
In Italy a lot of that was nationalized, and got privatized over the last few decades, because of course markets are more efficient aren't they, especially when it's about managing basic infrastructures of modern society.
Show threadChristine Burns MBE 🏳️‍⚧️📚⧖1d ago
@bovaz @RichardJMurphy The UK is renationalising rail services as the franchises expire and, in Greater Manchester, the Mayor has taken bus and tram services back into public ownership and is integrating them with local rail. So, these things are possible with the political will.
Show threadPeter Brown1d ago
@christineburns @RichardJMurphy they will NOT agree to regional pricing because the movers and shakers are in London and they would end up paying more whereas at the moment London pays less than where the electricity is generated (in Scotland).
That’s why they’re plugging this idea of energy clubs to try and take the heat off it. But it doesn’t make a huge difference to prices as the starting point is still the price of gas.
Show threadChristine Burns MBE 🏳️‍⚧️📚⧖1d ago
@peterbrown @RichardJMurphy There is a price premium that the Southern Jessie NIMBYs ought to be exposed to. The thing is that North West and North East England and the whole of Scotland DO regularly have times when gas wouldn’t set the wholesale price. . In fact I can’t remember if there is still a gas fired power station left here. To have substantially cheaper electricity would be a great draw to business.
Show threadPeter Brown23h ago
@christineburns @RichardJMurphy Scotland is currently on 130% renewable electricity with a very substantial surplus going south of the border but we don’t get the financial benefit at all.
Same for gas. The cheapest place for gas should be the areas around Aberdeen, but of course they couldn’t have that. Gas is charged at the same price everywhere.
Unless of course you’re eg. in rural Scotland without mains gas and you pay through the nose for bottled gas or heating oil.
Show threadbeakerman21h ago

@peterbrown @christineburns @RichardJMurphy

BUT WE ARE A UNION OF EQUALS
and the scales from our eyes are falling🏴󠁧󠁢󠁷󠁬󠁳󠁿

Show threadD Ingram1d ago
@RichardJMurphy Marginal pricing when table stakes are billions does break down. The UK approach has influenced spot market design in Australia and New Zealand too.
Show threadBruno Nicoletti1d ago
@RichardJMurphy Quibble one in an other wise excellent article. I thought that money paid back by generators under CDFs didn’t go to the government but instead acted to lower prices, and vice versa when money was paid to top up a CFD, it raises prices. Regardless, the entire system needs redesigning.
Show threadBruno Nicoletti1d ago
@RichardJMurphy Quibble 2. Marginal pricing encourages cheaper producers to build new generation as there is profit in undercutting the expensive price setters. However until the most expensive generation is squeezed out the only people who benefit are the generators not the customer. Which is taking _decades_ (“efficient” markets, Bah!). You somehow need to encourage capital to invest in new generation, so segmenting as you suggest or splitting the difference between bid and most expensive.
Show threadJames Tweedie23h ago

@RichardJMurphy Great explanatory article Richard. Thanks.

I also like this to illustrate the 'criminal' absurdity of the current system: https://wastedwind.energy/2026-03-17

The 'wasted' part is what all of us (consumers) are paying via our electricity bills, I believe.

Wasted Wind

Britain wastes millions a day switching off wind turbines. See how much has been wasted today, and in 2025.

Wasted Wind
Show threadPeter Brown20h ago
@RichardJMurphy they are playing at the edges with Energy clubs to match generation with consumption and with microgrids, but they’re not addressing the elephant in the room which is the pricing mechanism.