I keep reading that the wholesale price of all electricity in the UK is the marginal cost of the most expensive generator in the mix for any given half hour (e.g. [https://www.goodenergy.co.uk/blog/why-does-the-price-of-gas-drive-electricity-prices/](https://www.goodenergy.co.uk/blog/why-does-the-price-of-gas-drive-electricity-prices/),) You can find this fact all over the internet, along with arguments that the arrangement encourages investment in renewables, especially when gas prices are unusually high.
However, if you track the actual spot prices (e.g. here [https://grid.iamkate.com/](https://grid.iamkate.com/) ) you can see the price go very obviously down to near or below zero when there’s lots of wind/sun, and up to £100/MWh when there’s not, even though there’s always some amount of gas in the mix.
Although I’m sure this makes sense somehow, I can’t understand how both of these things can be true at the same time. Surely if all our generation was being priced at the marginal cost of gas, the prices would be fairly consistently high the whole time, and would hardly vary at all with wind and solar availability.
Can anyone help explain?
Source: Slow-Kale-8629
2 Comments
There are different types of gas plants with differing efficiencies. Sometimes those plants keep producing even when price suggests they should shut down, because they take a long time to reach peak production and they want to be at peak production a few hours from now when the sun sets.
And those individual plants can usually be configured to produce a little more power at the expense of losing efficiency, but must be compensated for doing so.
I’m not an expert on pricing in the UK, but in US wholesale markets, this can happen a lot. The marginal unit can be a zero-cost (or even negative cost unit with the production tax credit) but there are gas units online to either act as spinning reserves or to provide capacity when the sun sets and demand rises. (See the “Duck Curve” in California.) Since these plants are not needed to meet immediate load, they don’t affect the marginal clearing price for electricity and are paid for ancillary services (which is a separate market for reserves/regulation/others) or made whole through out-of-market payments or uplift (terminology varies by RTO/ISO.)