gas – The Green Tau

4th June 2025

Following on from yesterday, why then does the UK have some of the highest electricity costs?

Currently about 43% of the UK’s electricity ones from renewables but this is not reflected in the prices consumers pay. The wholesale price of electricty is largely determined by the price of gas – a commodity that has increased significantly in cost on recent years.

The wholesale price of electricity is determined by half hourly bids made by each electricity generator. In response to these bids, electricity is fed into the grid to meet current demand, starting with electricty from the generator with the lowest bid, and working the way up through the bids until the demand for that half hour has been met. Typically the lower bids are submitted by renewable generators as their’s is the cheapest to produce. However the price ultimately paid to all the generators supplying electricty is set at the price bid by the generator who supplies the final chunk of electricity needed to meet demand. Where the grid is still dependent on non renewable generation, this final bid is typically comes from a gas powered station – and their bid reflect the price of gas. Hence even though our electricity supply is not wholly supplied by gas, it is gas that determines the cost of our electricity. This pricing mechanism is referred to as marginal cost pricing. (1)