UK Carbon Pricing Is Now Forcing Electricity Prices Higher


By Paul Homewood

While some of the recent energy price rises have been due to international market factors, part is the direct result of government policy.

I mentioned the role of carbon pricing a few months ago in pushing up the cost of electricity.  Since then carbon prices have jumped even higher to £84.50 per tonne. Two years ago they were trading at below £15/tonne (via the EU scheme):

This increase has been deliberately engineered by government, in order to push up the cost of fossil fuel generation so as to make expensive renewables competitive.

The policy is also to track EU carbon prices, which have also rocketed in the last two years.

A typical CCGT plant emits  about 374kg of carbon dioxide for every KWh generated, assuming 53% efficiency. A carbon tax of £84.50/tonne would therefore add about £32/MWh to the cost of gas generation.

Given that the wholesale cost of electricity is currently £208/MWh, this represents a sizeable chunk. Because of the way the electricity market works, this extra cost gets passed on to all sources of generation, not just gas, because CCGT plants tend to set the market price as they are the marginal generators. The report below explains:

So consumers end up paying this £32/MWh on all of their electricity, which provides a windfall profit to all low carbon generators.

When the UK Emissions Trading Scheme was introduced last year, provision was included to contain costs and prevent market instability in emergencies. Actions allowed include flooding the market with extra permits.

Given the severe energy crisis now upon us, this provision should be triggered immediately.

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Patrick MJD
February 10, 2022 10:14 pm

Sheesh! This whole policy was “designed” to do exactly this. Making very rich people even richer.

Lance Flake
Reply to  Patrick MJD
February 11, 2022 6:08 am

Bingo. That’s the “climate crisis” in summation.

Reply to  Lance Flake
February 12, 2022 5:23 am

…and all while freezing out the peasants, which is the REAL source of government income. Dumber than a box of bent screws….. (walks away, shaking head)

February 10, 2022 10:32 pm

“A typical CCGT plant emits about 374kg of carbon dioxide for every KWh generated”

I think you must mean per MWh, not KWh.

It doesn't add up...
Reply to  Kazinski
February 11, 2022 5:31 am

It may be even higher. The average fuel efficiency of CCGT plant is about 48% in UK conditions, because so much of it is being constantly ramped up and down to balance demand and wind. The best plant could manage 60% run as baseload.

February 10, 2022 11:13 pm

54% energy price increase just approved come April 2022 by UK regulator OFGEM. That’s apparently what’s coming up for even 22 million households.

Reply to  gringojay
February 10, 2022 11:19 pm

The higher the prices the sooner the revolt.
Put the carbon tax up double.
Do not activate those provisions.
Let people suffer.
Sometimes a hot stove is the lesson.

Alastair gray
Reply to  angech
February 11, 2022 12:11 am

A very cold stove in this case

February 11, 2022 12:17 am

The green revolution is the greatest joke to the British elite.

Back in the old days peasants paid tithes to the Lord of the Manor in return for his protection, and placed their faith in his benevolence.

Since the Parliament Act and the rise of democracy, landed gentry have more or less fallen on hard times.

But all that is over thanks to the Green Revolution.

Now, peasants are paying green tithes to landed gentry who have vast estates with lots of wind turbines, and placing their faith in their benevolence, in return for protection from climate change. Even funnier, instead of staging a tax revolt, many of the peasants keep demanding the government increase the tithes they are paying, in return for more protection – from a threat which doesn’t exist.

Its not just the Conservatives. Labour and the Lib dems have their own rich donors, many of whom own large estates full of wind turbines.

Reply to  Eric Worrall
February 11, 2022 5:01 am

“The green revolution is the greatest joke to the British elite.”

On the contrary, Sir, it is from the British elite – see the post on CDP above.

Iain Reid
February 11, 2022 12:40 am

It is not quite as simple as that ccgt is the main dispatchable generation and it’s contribution has to balance grid supply and demand. High wind means low gas and give versa.
Therefore it is not competing as such for the market. It is forced to generate what the system frequency demands. Certainly individual operators may decide if they want to operate I would guess but it is anything but a ‘ market’ for them.

It doesn't add up...
Reply to  Iain Reid
February 11, 2022 5:48 am

Just to illustrate your point, here is the GB grid at hourly resolution over December (click image and display in a new tab for high resolution version).

We get all the extremes: exports at negative price in windy, mild weather over the holiday, and soaring peaks during shortages when CCGT no longer has any spare capacity to offer. French demand over the interconnectors because of their own capacity problems. Big price spikes when plants trip out.

GB Hourly Dec 21.png
Peta of Newark
February 11, 2022 12:50 am

But, the higher prices are OK – we can afford them.
Why. How is this?

Because the UK economy grew by 7.5% in the last year = better than any of the other G7 nations and because the BBC says so
They do admit that UK economy sank by 9.4% last year – does that not mean that ‘output’ and Gross Domestic Product ## is still negative?

Have you ever seen a more misleading graph in All Your Life, it puts a lot of climate graphs to shame

Why have governments become so dysfunctional, why are they doing everything contrary to what they’re supposed to do?
And lying about everything.

## Am struggling to think what UK ‘product‘ actually is – apart from petty bureaucracy, red tape, mendacity and tax rises?
Is there much of an export market for those things?

UK Growth by BBC.png
Richard Page
Reply to  Peta of Newark
February 11, 2022 3:23 am

I did think some years ago that Brexit meant Brexit and that by leaving the UK could actually get rid of much of the red tape and protectionist rubbish from the EU. How naive and foolish that seems now, when we realise that Brexit doesn’t mean Brexit; it means doing exactly the same, following exactly the same diktat as before but with fewer benefits and the President of France threatening war every other week over some imagined petty slight. Time to get rid of the EU carbon pricing and the unreliables subsidy farming.

Gerry, England
Reply to  Richard Page
February 11, 2022 4:01 am

You underestimated how the ‘ruling elite’ remain pro-EU and have no desire to take advantage of leaving the EU. The lying oaf of a Prime Minister is a metropolitan liberal and, despite the drivel that comes out of his mouth, is pro-EU.

On top of there being no will to change, there is not the intellect or knowledge to do so. Fiddling around here and there is not what is required, but a whole structural review of legislation by sector. Take food inspection and production. This needs to be returned to the system we had prior to joining the EU that was far better than what we have now. Vets didn’t get trained to look at pizzas so it is no wonder they are in short supply. Return the job to trained food inspectors. Bring back the small scale local slaughterhouses the EU rules killed off. There will of course be a cacophony of screeching for the Guardianistas, the BBC, et al but honestly, if they are not screaming in anger the job is not being done right.

Gary Pearse
Reply to  Gerry, England
February 11, 2022 6:20 am

It’s too bad Nigel Farage didnt press his advantage and go for running the government. You need a complete overturning by somebody not in the chummy plummy network. Maybe Farage felt the citizenry needed a deeper grinding down before he would be attractive to the majority. He may still be an option.

Reply to  Richard Page
February 11, 2022 4:08 am

The CDP, Carbon Disclosure Project, dominating IPCC British and EU economic policy now, is from the Goldsmith’s, top Tory donors. No wonder Brexit changed nothing. No wonder BoJo follows the climate narrative – Symonds was press agent for both Goldsmith and Aspinall the top 2 Tory donors. Look up Teddy and Jummy’s Climate Initiatives Fund . Follow the green money trail….

As for war, Truss takes the biscuit – asked by Lavrov just yesterday does the UK accept Russian sovereignty over regions of Rostov and Voronezh? Truss replied UK “will never recognize Russia’s sovereignty over these regions.”. UK Ambassador Bronnert had to urgently intervene! Now I wonder where is that British expeditionary force exactly? A week before Truss claimed the Baltics were on the Black Sea.

Richard Page
Reply to  bonbon
February 11, 2022 5:53 am

Where are those British troops? Well, they were supposed to be going to Poland but if Liz Truss briefed them they could be half way to Palau by now. I read with great interest how the great peacemaker of our Time, President Macron, had travelled all the way to Moscow to broker a deal with Putin over Ukraine and was said, by the MSM, to be making progress. I also noticed, in a Russian press release, that Macron has no standing or influence with Russia to arrange any sort of deals. Guess he’s going to have to look elsewhere to bolster his election chances. Will he threaten war again do you think?

Gary Pearse
Reply to  Peta of Newark
February 11, 2022 6:09 am

Peta, the 7.5 % rise should be measured up from the bottom of the previous year’s red bar. Economic numbers haven’t really meant much on your side of the ocean for a couple of generations. On our side we complain about gov numbers but, until the present admin, there was some degree of reality in the numbers.

February 11, 2022 12:51 am

There is one very good thing about this, and great thanks to Paul Homewood for assembling all the data about it, which lets us see it as a whole.

This is that the real costs both social and financial of the attempt to move to Net Zero are becoming apparent. The way to think about it is that the proposed measures are necessary in order to be able to get to it. They are not usually positioned that way, but that is what’s going on.

What we are seeing is the costs of moving to intermittent generation technology. There are only a couple ways to deal with intermittency. One is vast amounts of storage, and that means more than a week’s worth. Impossible.

Another is to match demand to the supply. This can be done in a couple of ways. One way is to put the car chargers and heat pumps on smart meters which have the ability to turn them off. This is being seriously proposed.

The other way is price. The proposal now is to meter usage from the smart meters every half hour, and set prices by the spot market. This transfers the risk of spot fluctuations from the supplier onto the customer. The customer will now voluntarily (at least after the first bill!) stop his car charging in peak time, and will turn off his heating.

Notice the huge social change in relationship to electricity. No consumer anywhere has, up to now, had to buy electricity for their use on the spot market or at spot market prices.

Its now being admitted that as part of the move to Net Zero, and the total electrification of all energy use in the UK, this is necessary.

Its also going to be necessary to track all EVs, because the only way anyone can think of to make up for lost fuel taxes with the move to EVs is to charge for road usage by the mile.

And finally, because despite all the wind and solar, the main source of the electricity that is being billed and provided in this way will be gas, that being the only technology which can be brought on stream fast enough to make up for the wind fluctuations, the carbon tax will raise the price of electricity in the way this piece points out.

Its going to be a colder and darker future, and a poorer one too. And its going to get any government which presides over this thrown out in favor of anyone, anyone at all, who promises to put a stop to it.

I would really like to see a comparison of CO2 emissions for a system which is wind and solar backed up by gas versus one running solely on gas. I suspect there would be little difference in emissions, but an enormous difference in installation and running costs.

It doesn't add up...
Reply to  michel
February 11, 2022 5:24 am

There is actually no need to track EVs to levy mileage charges. Just have them report the mileometer reading monthly. Or better, report on how much electricity they have used for charging, and add a surcharge to the bill for it.

Dave Andrews
Reply to  michel
February 11, 2022 9:12 am

Don’t have a smart meter. Every quarter we get a text message asking for a meter reading which we text back. Certainly not going to be doing this every half hour – will tell them to stuff that and come and read the meter themselves!

February 11, 2022 12:53 am

While some of the recent energy price rises have been due to international market factors

It is all down to international gas prices. without that, other issues are insignificant.

Strike prices for new renewable projects are consistently lower than those for gas. The existing cfD strike rates on many projects (they run for 15 years) will soon expire and the next set of prices will be lower.

renewables firms are currently paying back money since the market price driven by gas is higher than their agreed strike price.

Andy Wilkins
Reply to  griff
February 11, 2022 1:12 am

Very lovely Griff. But solar and wind are useless at night time when the wind’s not blowing. Gas fired, however, working all the time. And that’s your problem: you can waffle on about strike prices all you like, but you’ll never solve the unreliability problem.

Reply to  Andy Wilkins
February 11, 2022 8:36 pm

And note the graph showed ~7 days of very limited wind output, mostly covered by fossil fuel generation. So, this means at least 7 days of storage would have been needed for Dec 2021, the cost of which should be added to the true cost of wind turbines.
Dispatchable energy is far, far more valuable than the unreliable renewables.
The UK is taking their energy grid [and their economy] down a dead end street.

Reply to  griff
February 11, 2022 4:55 am

This twat called Griff has never bought a bottle of gas anywhere but in the UK.
What a jerk!!
I buy bottles of Butane (and petrol) just over the border in Russia, and in the EU.

95 octane in Russia approx 0.50EURO
Price next door in Estonia 1.65.

Price of a bottle of gas in a store in Ivangorod 1EURO
In Europe 2.8EURO

EU TAX FA to do with the international energy prices where TAX on energy on fuel is already high in the RF.

Same products, so where exactly do your source your constant and idiotic twaddle??

Reply to  pigs_in_space
February 11, 2022 4:57 am

oops typing mistake Price next door in Estonia 1.65.
It’s 2.8-3 EURO.

Reply to  griff
February 11, 2022 4:58 am

“It is all down to international gas prices”

Which is why we should be opening fields up in the North Sea and fracking on land.

Then we wouldn’t have to pay exorbitant prices on the global market.

Like you griff, it’s very simple.

Reply to  griff
February 11, 2022 5:01 am

You have to ask what led to the rise in gas prices. A very large contributor was a dearth of wind.

And yes, the price per unit from wind may be falling. But the costs of using it in the grid are rising. Costs for operators, which will now be passed on to consumers.

Look at the variations over last year. No-one in his right mind would buy this product to supply the current grid and current demand.

It doesn't add up...
Reply to  griff
February 11, 2022 5:26 am

Thete is no such thing as an international gas price. Prices are hugely different in different parts of the world.

Reply to  griff
February 11, 2022 7:07 am

Funny how Americans pay far less for gas. You’d have thought they would have to pay the same as everyone else due to “international gas prices”. They don’t due to a number of factors. Go and find out why the UK’s National Balancing Point price is diverging from the US Henry Hub price.

Reply to  griff
February 11, 2022 8:06 am

So Griff why are green energy tariffs costing the same as “gas” based ones – shouldn’t we all be rushing to get the green energy t the really low price that it’s supposed to cost?
As with so many idealists you are totally fracking deluded and we are all paying the price of you and your ilk’s blind faith and even blinder stupidity!
Looking forward to seeing what all of this BS achieves (for the tax paying public) in the end – NET ZERO in our pockets.

Reply to  griff
February 11, 2022 5:26 pm

Cut out coal and nukes and you’re only left with gas fired power insurance then what did you expect would happen with gas demand and prices griff? Oh that’s right lithium batteries and how’s the lithium price doing? Can you make any connections with those brain cells of yours?

February 11, 2022 3:25 am

This is the result of trying to leave it in the ground

It isn’t just supply and demand, it’s where the supply comes from

Peta of Newark
February 11, 2022 4:07 am

I forgot to say before..
UK fertiliser prices.
There’s still an old money-saving and intensely Nosey Old Peasant within me and I follow farm prices as they would affect me had I still been an Actual Old Peasant.

Fertiliser in the UK is now almost exactly double the price it was this time last year.
It gets worse as fertiliser was always affected by ‘truck driver shortages’ and by this time of year, most of it would have been on farm. (if a trucking company found *any* spare slot between November and March, they used that to fetch the stuff, 28 tonnes at a time)

Reading the Farmer’s Weekly magazine, the general feeling is that Young Actual Peasants are gonna spend the same on fert as they always did.
i.e. Only buy & use half as much

Being an optimistic lot as they are, they’re expecting ‘nice summer weather’ to make up the shortfall in crop yield. I imagine a supercomputer at the Met Office suggested that..

It gets worser and worser.
Because of and following Brexit, UK farmer’s support payments are effectively ending this year – apart from maybe £20 per acre ## to let fields turn into overgrown scrubland.
It’s for ‘the environment‘ and ‘the climate‘ you understand

I cannot see anything that could *possibly* go wrong, can you?

## Previously they got about £100. Compare to farmers in Holland who got £600 and the rest of Europe averaged out at about £400

patrick healy
Reply to  Peta of Newark
February 11, 2022 5:13 am

Great points Peta,
Over at The Sundance has been beating the farm pricing supply and demand drum for ages.
Then when you throw in the heroic Canadian Truckers protests, those townies will soon realise food does not come from shops, when the shelves are not replenished.
I suppose most of them think they can just order their food from that Brazilian River Company.
Mind you as an old country boy myself, what ever happened to good old dung?

Kevin kilty
Reply to  patrick healy
February 11, 2022 8:14 am

Good ol’ dung? It may be free in the stables and wind shelters and barn, but it is far from free by the time a person gathers and delivers it to a field. It is similar to harvesting that “free” wind energy. Grey hydrogen produced fertilizers are more cost effective — plus, and this is a big plus, you cannot maintain productivity without external inputs of fertilizer. This is an engineering 101 mass balance issue.

February 11, 2022 4:17 am

The CDP, Carbon Disclosure Project, dominating IPCC, British and EU economic policy now, is from the Goldsmith’s, top Tory donors. Senior Goldsmith held both British and French citizenship…

No wonder Brexit changed nothing.

No wonder BoJo follows the climate narrative – Symonds was press agent for both Goldsmith and Aspinall, the top 2 Tory donors.
Look up Teddy and Jimmy’s Climate Initiatives Fund . Follow the green money trail….

Gary Pearse
February 11, 2022 5:40 am

When this ship sinks, there will be a big hangover of taxes. Even non-neomarxist governments are reluctant to reduce taxes, unless you have a Donald Trump, which probably you don’t (Farage?). The Big Experiment has shown them what Brits will tolerate. Give the people a 10-15% cut back of Gov take and they will be happy.

February 11, 2022 6:14 am

There shouldn’t be any surprise at this. Boris said at one point this is precisely his intention, to punish gas users by raising the price so high they would be forced onto electricity.

It doesn't add up...
February 11, 2022 6:45 am

The arrogance of green government.

Sir John Redwood MP asked about this after I had mentioned the problem a couple of times on his blog:
To ask the Secretary of State for Business, Energy and Industrial Strategy, for what reason he has not abated the carbon price in response to changes in the level of carbon price. (110215)
Tabled on: 24 January 2022
Greg Hands:
Following the triggering of the UK Emissions Trading Scheme’s Cost Containment Mechanism, the UK Emissions Trading Scheme Authority (made up of the UK Government, Scottish Government, Welsh Government and Northern Ireland Executive) considered the factors that may have affected allowance prices, and agreed that not intervening in the UK Emissions Trading Scheme was the right course of action in both December and January. The Authority issued a statement after both decisions, with its reasons, on
The answer was submitted on 01 Feb 2022 at 17:54.

The entry:

The UK ETS Authority recognises the sensitivity of the issues under consideration in the context of concern about energy prices and determination to tackle climate change. Ministers discussed these issues, acknowledging that any final decision was finely balanced. Following debate on these points the conclusion reached was that the UK ETS Authority should not intervene at this time, having also taken this approach following the December triggering of the CCM. This decision, like that in December, is aimed at upholding the objectives of the UK ETS as a market-based approach to reducing emissions and incentivising participants to find the most cost-effective solutions to decarbonise.

a.k.a. stuff you, you can eat carbon allowances at twice the price. It makes our green troughing so much more profitable.

Tom Halla
February 11, 2022 6:54 am

Carbon taxes are just another regressive tax.

February 11, 2022 7:40 am

Virtually all the components of wind turbines, solar panels, and all forms of transportation are assembled with products made from oil derivatives manufactured from crude oil. Ridding the world of crude oil would eliminate most forms of transportation and electricity generation from wind and solar.

Kevin kilty
February 11, 2022 7:55 am

This is not directly related to UK gas prices, but I read a couple of days ago that natural gas prices in New England were heading toward $30 per million BTU. By coincidence I got a flyer in the mail offering me a contract for 44.7 cents per therm for the next two years. Ten therms are a million BTU, so I am being offered $4.47 per million BTU — you poor devils in New England!

My current commodity price for natural gas is 30.1 cents per therm, so in the past two years the commodity price has gone up by about 50%. Much of this is due to energy market price increases because gas is increasingly in demand to back-up wind and solar. But soon price increases will also include the brain-dead policies (surcharges for leaking methane, restricting leases and horizontal drilling/fracking etc) regarding global warming. So the sky may be the limit over the next few years.

By the way, commodity cost is about 40% of my gas bill in January, and a smaller fraction in the warmer months. The rest of the bill is upstream costs, taxes, a laundry list of adjustments, and other falderal.

King Coal
February 11, 2022 8:24 am

Reliable, affordable energy is a human right and should be considered a national security issue, not a football between the green blob and money men

February 11, 2022 1:40 pm

Does that mean higher trade walls around the EU?

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