Fossil gas drives quadrupling of UK electricity prices

New analysis by Ember reveals that the skyrocketing price of fossil gas was responsible for 85% of the increase in UK wholesale electricity prices in 2021.

Sarah Brown

Senior Energy & Climate Analyst

14 January 2022 | < 1 min read

Executive summary

UK electricity prices quadrupled in 2021 and fossil gas is to blame

Fossil gas responsible for 85% of cost increase last year

New analysis by energy think tank Ember reveals that the skyrocketing price of fossil gas was responsible for 85% of the increase in UK wholesale electricity prices in 2021. In just one year, wholesale electricity prices quadrupled and it became almost five times more expensive to generate electricity from gas plants.

Monthly average UK wholesale electricity prices jumped by almost £190/MWh in 2021 – from £55/MWh (December 2020) to £245/MWh (December 2021). The cost of fossil gas was responsible for £162/MWh (85%) of this spike.

The UK remains heavily reliant on fossil gas for its electricity. In 2021, the UK generated 40% of its electricity from fossil gas plants. From December 2020 to December 2021, the cost of generating electricity from a combined cycle gas power plant (CCGT) surged from £48/MWh to £227

Conclusion

The UK already has the way out: phasing out gas

Energy prices are spiking around the world, partly as demand returns as we emerge from the coronavirus pandemic. Europe is especially exposed due to its dependence on Russian gas. As long as the UK continues to rely on fossil gas, the country will remain exposed to the volatility of global fossil fuel prices.

The government has committed to a zero-carbon power sector by 2035, following the successful phase-out of coal with a phase-out of gas. But to meet UK climate targets, National Grid shows we need to have driven gas use down to less than 1% by the end of this decade. Fossil gas provided 40% of UK electricity in 2021, a figure that is slowly falling (in 2010 gas provided 46%). Wind and solar produced 25%.

The cheapest electricity is now the greenest electricity. Offshore wind, onshore wind, and solar are now effectively subsidy free. According to the latest renewable generation costs from IRENA, generating electricity from existing UK fossil gas power plants is three times more expensive than from new onshore wind and almost twice that from new solar. Even the levelised cost of electricity (LCOE) from new offshore wind is currently cheaper than generating electricity from fossil gas.

The more clean power the UK can deploy, the less dependent it will be on gas, which will lower electricity costs – and cut emissions.

Supporting Material


Methodology

Detail on calculations

Cost of generating electricity with fossil gas has been calculated using NBP Day Ahead gas prices and UK ETS carbon prices. Combined cycle gas plant efficiency rate of 55% (Lower Heating Value) and carbon intensity of 0.37 tCO2eq / MWh.


Acknowledgements

Photo

Photo © Copyright David Hebb and licensed for reuse under this Creative Commons Licence.