A deep dive into the "Energy Paradox." We explore the archaic bidding system, the hidden costs of intermittency, and the reality of Net Zero economics.
Renewable Capacity
~48% of Generation
Market Dependency
Gas sets price 84% of time
This is the "archaic system" Greg Jackson refers to. It's called Pay-as-Clear. In the UK, electricity is sold in half-hour slots. The National Grid accepts bids from cheapest to most expensive until demand is met.
Crucially, the most expensive generator needed to meet demand sets the price for EVERYONE.
Adjust the global Gas Price. Watch how it affects the final price paid to cheap wind farms.
Final Clearing Price
£120.00
Paid to ALL generators
Simplified "Merit Order" Stack showing Installed Capacity (GW).
Note: Renewables are modeled with a £5 nominal bid for visibility (actual bids often ~£0).
Renewables are cheap to generate (LCOE), but expensive to integrate. When the wind doesn't blow, we need expensive backups. When it blows too hard in the wrong place, we pay to turn it off (curtailment).
Levelized Cost of Electricity. This is the headline figure. Wind looks incredibly cheap (~£40-50/MWh) because fuel is free.
Value-Adjusted LCOE. This adds the cost of "Firming" (Battery storage, backup gas peakers) and Grid Upgrades.
To make wind "firm" (reliable 24/7), you must add storage costs, which can double the effective price.
Nuclear (like Hinkley Point C) has high upfront capex and planning costs. The Strike Price is ~£128/MWh (inflation adj), ensuring stability but at a premium over raw wind.
Network Costs
~18%
Maintaining pylons & balancing grid
Env. & Social Levies
~12-15%
Subsidies for RO & CfD
The wholesale cost (generation) is usually less than half your bill. The rest is infrastructure and policy.
When wind drops in the North or pipes congest, National Grid pays generators to turn on/off. These costs have risen 300% since 2019 due to volatility.
Older renewables contracts (Renewables Obligation) are expensive and charged to bills. Newer CfDs (Contracts for Difference) are actually paying money back when market prices are high, but legacy costs remain.
When suppliers bust (like Bulb), the cost is socialized onto everyone's standing charges.
The government is reviewing market arrangements (REMA). The biggest proposal is splitting the market into a "Green Power Pool" and an "On-Demand Pool".
Toggle between current marginal pricing and a split market.
Currently, renewables are paid the marginal gas price.
In the current system, even if wind costs £50 to make, we pay them £120 if gas sets the price. This encourages investment but hurts consumers.
Splitting would pay wind their long-run average cost (CfD price) and only pay gas the high price for the portion of energy they provide.