The new wind power is mostly idling natural gas power plants, which can spin up on the rare occasions there's no wind in the North Sea. Then the UK only uses the expensive shipped LNG a few days a year. The much cheaper piped natural gas is already allocated.

The key is that in the UK gas sets the price almost 100% of the time, vs 25% in Germany or less than 10% in France. The fix: build more of the cheap sources. A patch: cap what gas can bid.

The self-imposed tax is there and isn't going anywhere, so it's included in the price.

The other two points are accounted for in the strike price, because this capacity came into being and is now offering electricity at the strike price.

The actual cost has to price in the impact of using it.

For example, it's cheaper for UK water companies to pump sewage into rivers and onto beaches:

https://www.bbc.com/news/articles/cz9kz8ydjpno

https://www.bbc.com/news/uk-england-london-67357566

https://www.bbc.com/news/articles/c5yprnd848ko

https://www.theguardian.com/environment/2025/sep/16/sewage-o...

But maybe it's a nice idea to force them to deal with sewage properly so you don't have to live in rivers of shit.

Is that unreasonable? Carbon dioxide is an externality, and it needs to be accounted for accordingly. Suppose the government is tendering contracts for milk for school lunches. One farm runs a CAFO[1] that pollutes the local river. The other has cows on a pasture that doesn't. Is it that unreasonable for the government to be like "well hang on, the CAFO farm might be cheaper the grass fed farm, but it'll cost us money to clean up all the shit they're dumping into the river, so we're going to impose a tax on the CAFO farm for their pollution"?

[1] https://en.wikipedia.org/wiki/Concentrated_animal_feeding_op...

That isn’t a “system”. It’s just what happens. Why would the 99% RE be forced to sell at a lower price? They will sell at whatever the market value is. Which is determined by supply and demand. And the gas turbines will only turn on if it becomes profitable for them to turn on at that price. So the causality actually is the other way around. Lots of demand increases electricity prices, higher electricity prices make it profitable for more expensive means of production to be powered up.

That's how commodity producers like farmers can be profitable. The marginal producer makes no profit, but every producer who can get their costs below the marginal producer makes a profit.

If farmers didn't make any money, they'd stop farming and we'd have no food.

Like if gas is $5 and RE is $1 the RE folks get $5 instead?

Devils advocate would say that might work out in RE's favor. Lower production costs mean more profit and therefore more incentive to build more RE

So, OK, clearly this CCGT electricity here (made with gas) offered for £85 per MWh we're going to buy that, for £85 per MWh.

Now, we also needed all this wind power which bids £5 per MWh. Presumably you'd want to pay them less than £85 per MWh. So, too bad, they bid too low, they get punished right? But since you aren't OK with paying less than the bid price, doubtless if they had bid £84 you'd pay that right?

Notice that the incentive in your model is for everybody to guess what you'll pay and bid just barely below that, whereupon you've wasted a lot of resources, your strategy no longer has any price discovery value, and you're paying almost as much as before. A triumph of... rationality?

How much do you reckon you can save the average household if you do this? £50 per year? Twice that?

Capacity is constant. You're talking about capacity factor, i.e., average utilization. Numbers from 2018 for Danish offshore wind farms show capacity factors approaching 50%. These brand-new turbines mounted on 150 meters+ towers in the middle of the North Sea will absofuckinglutely beat that.

https://www.modernpowersystems.com/news/eight-new-uk-wind-fa...

Over the period 2010 to 2023 they reduced electric bills in the UK by about 14 billion, but reduced gas bills by about 140 billion!

That's not true at all, Reform could get in and remove it day 1!

Nonetheless, two thoughts come to mind:

1) we don't know the "actual cost" of offshore wind

2) we may not be able to afford even the "market cost" of offshore wind without the natgas tax subsidy

It’s not unreasonable to report the facts and let the reader decide. The carbon tax is a readily available fact where in your example is subjective.

You can just as easily flip that around: Why should the consumer pay a price that is entirely disconnected from the actual cost of production?

The point of this is that it's supposed to guarantee windfall profits for wind operators, to make it attractive to keep building out wind until all the marginal gas is pushed out of the market mix. The price being set by the highest-cost source in the mix is a feature for incentivizing buildout, not a bug.

Yes it is unreasonable. Spending money to reduce carbon is just a subsidy for other countries who DGAF and will emit both theirs and yours.

Is there real evidence the collected tax revenue is actually offsetting carbon emissions?

There's a lot of fraud in carbon credit systems - where often the sole benefit is feeling and/or looking good.

Is this self-imposed tax actually having a real result - or is it just artificially increasing the price of energy? If the latter, then it's not really fair to claim it's the actual cost.

Why should an operator of wind turbine sell their kWh for less if the current price is high? That would be stupid.

You do marginal pricing because otherwise providers will simply bid what they think the crossover price will be - marginal prices lower prices in the long run because providers try to improve their margins and lower their bids.

Also renewables bid on the spot and day ahead markets really low because their cost is almost entirely capex (and also most are under CfD anyway so may as well bid 0) - the spread isn't nearly as good as the data would imply. If you didn't use marginal pricing you'd have them bidding higher to cover their capex.

It leads to a lot of telling new sources to dump their energy, and paying them to dump their energy, while simultaneously paying old gas generators (nearer the demand) to fire up. All for the want of more grid capacity.

https://ukerc.ac.uk/news/transmission-network-unavailability...

When the wholesale prices is about the CFD strike price then the excess funds are paid to the Low Carbon Company and used to reduce electricity bills

Storage capacity is being build out - it's one of the prime uses of old power station sites (because they already have grid connectivity)

Grid capacity is being built out e.g. the Eastern Green links to allow transfer of power from Scotland to England and reduce curtailment payments

The marginal price windfalls happen specifically when you’re able to deliver at a low cost when demand is high in the same ISP.

This just seems like data-free fear mongering.

Why? Has the UK started trying recently? When I lived there nobody gave a hoot about fluctuating prices. It would have been hard to even know when electricity was expensive or not. Has it changed?

Meanwhile >three decades ago my grandparents in rural France had a big red lamp on the kitchen wall that would light up when energy was expensive. It was a part of their life and they had no problem with it. They chose that plan deliberately because it ended up cheaper.

If you’re saying that even with adaptive behavior , it’s all a wash because the constant cost of peakers is so high that you lose all savings when they kick in , no matter how little you use; ok, I believe you did the math.

But if the claim is “it’s impossible for humans to adapt their energy consumption depending on the current price of electricity”, I have seen first hand that is not true. For sure when I lived in Britain nobody did this at all, but that would be at best a British limitation, not a human one.

This isn’t a farmers market where individual actors can swiftly respond to supply and demand. This stuff has decades of lead time, is full of regulations and thus long term imbalances.

Nor is this a case of marginal anything. Gas is almost TRIPLE the price [0]. A normal functional efficient market like you have in mind would adjust to that sort of enormous profitability differential, the uk market has not.

https://www.nationalgrid.com/the-great-grid-upgrade/fact-or-...

Instead of focusing on this, here a few more impactful things that would help: 1. Zonal pricing, so that there is an aligned incentive to build production where demand is (connection to the grid is a big limiting factor) 2. Stop providing contracts to renewable where curtailed production gets paid (curtailed energy is paid by consumers as taxes on bills normally) 3. Start allowing to build more renewable so that renewable are setting the marginal price 4. Push utilities to do PPA (power purchase agreements) with producers of RE so they can agree to a fixed price, and a smaller slice of electricity is bought at the auction

There are a few more, but these are the most important.

Regarding your edit: the gas plant is not subsidizing, the customers are paying. But of course at the moment building renewable is so lucrative thanks to this setup, that there is a big incentive to build them. Of course they need to plan for 20-30 years, and the risk of getting to big periods at 0 marginal pricing is real, so builders need to evaluate well the risk (and PPAs can help)

In a non-competitive world what you say would be true (you'd avoid filling in the remaining 1%), but there are a large number of power producers that a cartel is unlikely

So it’s true each individual country only receives a fraction of the negative impact of their own emissions, but that fraction isn’t zero and therefore should be taxed to maximize economic efficiency. Further joining international treaties to agree to collectively tax carbon at a higher rate representing the harm across all those countries is even more economically efficient.

Dumping your waste, others be damned, is a hell of a way to live.

Yes, costs have skyrocketed -- combine harvesters start at about a million now. But wheat prices and yields have been high enough to more than compensate.

But Saskatchewan farmers are a great example of a low cost producer. A Saskatchewan farm usually runs about 10,000 acres per operator. UK farms with a couple hundred acres can't compete.

There are people, especially people with EVs and who can do that sort of "turn on a dime" lifestyle where you do laundry when it's cheaper not because it's Thursday who pay 0p per kWh some hours and 45p per kWh for that bleak winter's night.

For now that second group are a minority but they do exist.

The enabling technology is a bit more sophisticated than your French red lamp. "Smart" meters relay your usage constantly so you can be charged in 30 minute chunks, the same way the wholesale electricity market works. This also means you can see at a glance what's going on. So that's nice. The usual conspiracy people insist this is a future tool of control by government, just like almost everything that has ever been invented, bar codes on groceries, mobile phones, newspapers, parking tickets, everything.

yes

if there's 1mW of gas in the grid then everyone gets paid the gas price

this is called pay-as-clear, and has some positives (strongly encourages RE construction), and some disadvantages (zero long term planning, paying gas generators absurd rates if they can squeeze in at the top of the auction)

UK government is consulting on changes to this system at present

Edit to answer my own concern: But, reading this article, it does seem like the auction is the offramp. The government takes bids for enough power to supply the country, and once the auction is settled the worst-case cost is paid to all winners. So there's a hope that gas will eventually subsidize its replacement with renewables.

The purpose of the tax is not to raise money to plant trees, it’s to raise the cost of emissions so that markets move away from them

Also, if gas utilization falls dramatically capital costs will come to dominate. It’s not just the turbines, the gas network is costly.

https://en.wikipedia.org/wiki/Economy_7

My parents would set timers on the dishwasher, washing machine etc too run at night.

IIRC there are several utilities in the UK which provide option to price electricity dynamically, but they are not popular because people do not want to play this game. They want reliable supply of electricity for reasonable prices. Trying to mold consumption to satisfy intermittency of generation is nothing more than shifting the externality akin to telling people "you must plant trees to offset CO2 emissions!".

The one that I can think of is the government sets the amount of electricity produced, and then it’s rationed. But I doubt the UK would be happy with rationed electricity where your power shuts off the second it’s over. That would be essentially mandatory blackouts all the time.

Not to mention the cost would be held by the government, so you end up paying it in taxes anyway.

If capital costs are 10 and operating costs are 90, but later operating costs become 1, the capital costs remain 10 and the price to recover the capital costs is the same.

Of course the capital costs need to be spread over less kwh, so the kwh will become more expensive, but what matters is the avg (and thus total) cost paid, and that would be lower.

E.g.

5B in capital cost for 25MW (amortized in 25 years), and 30 per MWh in gas cost.

If you produce 180TWh (20h daily of production) the average price cost will be (5'000'000'000/25 + 180'000'000*30)/180'000'000 = 31 per mwh.

If you produce 36TWh (5h a day) the average cost is 35, but the total cost is significantly lower.

At the limit, if the power plant produces 1MWh in the whole year, it will cost 200'000, but paying that MWh that high enabled the system to pay for all the rest of the year the electricity at less than 31. You need to look at the total cost paid in the end by users, not at the marginal costs in some situations.

I don't buy it. Just before Xmas the grid managed to move about 23GW of wind and it was a record. 23GW is lots but there was peak demand at that time, about 14GW of gas was still running when they hit that record. How can it be of no benefit to expand beyond that ?

I don't expect to even start worrying about the factor that's got you scared until we have a whole day when the CCGTs aren't running.

I'd suggest first measuring how much single load uses. In my case it's 1KWh and 0.4KWh. Daily load would save perhaps 4-5 GBP per month or 5% off an average bill.

The government is turning a £55 gas price into £147 by adding an arbitrary carbon tax, and therefore making it look artificially more expensive than wind.

If we wanted to make an honest analysis here, we would say "gas is significantly less than expensive than the strike price agreed for wind, but some believe the externalities of gas generation could be signficant"

What they're auctioning are what's called "Contracts for Difference". The contract has a "Strike price" which is in essence the price the government (via a for-purpose company) agrees you will be paid regardless of what happens for electricity sold to the system.

Now as the word "difference" might suggest there will be a difference between the market price at any particular moment and this strike price. The CfD works by the government paying you the difference when the market price was lower, and you pay the government the difference when it's higher. You can definitely afford to pay them 'cos you just got to sell power for $$$$

Why do this? Well, the trick is that a government (even if politicians don't always act like it) is here for the long haul. So for them guaranteeing how much you'll be paid for energy you're not going to make for ten years is fine. Tax will still exist in ten years, houses with electric light will still exist in ten years, this is an easy bet. But for a wind farm company, a commercial undertaking, such guarantees are incredibly valuable and would be unaffordable from elsewhere. So this is (relatively) a very cheap subsidy.

When there was a gas price spike because Russia invaded Ukraine the contracted wind farms paid a whole lot of money because of that difference I talked about, if you'd gone freelance, no CfD subsidy well, you're printing cash, 'cos at those prices you probably made back your whole install costs in a year of trading.

The parent comment stated "actual cost has to price in the impact of using it". Most people would agree on this. However, for both claims to be true, the collected tax revenue must be spent offsetting the impact of that gas usage - not simply reducing gas usage (ie. that consumed gas isn't being compensated for).

If the UK government is spending that tax revenue on anything it wants, then it's not the actual cost, is it?

this is not the global oil market

the UK electricity market is a government creation, highly regulated, and only accessible to limited participants

30 minutely, day ahead, pay-by-clear auction markets are not a property of the universe

Honestly, pricing based on the cost of financing and operation isn't a terrible idea.

£90 wind energy does not make for a low cost energy environment. And if spot prices dropped substantially the UK government is going to be taking a massive loss on these contracts.

I’m coming across as very negative in this thread, but I do really want renewable energy to succeed. I just work in the industry so I’m very aware of how challenging it is to make the economics stack up, so I find these puff pieces a bit exasperating.

The CPS charge isn't going away so it's not making gas look artificially more expensive than wind

If you then also spend the taxes on some form of offsets (if we pretend for the sake of argument that those work) you would have reduced emissions twice. One time seems plenty to say they are doing their job.

https://www.ref.org.uk/ref-blog/382-newly-opened-viking-wind...

(Or in the case of renewables: producing for less profit than they would if they made their contract later)

Under the current system, when energy becomes hard to produce or more people need it, rising prices means people will reduce. So pricing for cost of financing, sure, but it might be a higher cost because people will consume more.

Gas is cheaper, like-for-like.

We impose special taxes on gas, making it artificially more expensive, in order to manipulate the market into reducing use of fossil fuel.

There. That's all that needs to be said. If you're honest with people they're more likely to trust you, and join you in your endeavours.

The high cost of gas is entirely politically-driven, as Reform UK will prove when they take office in 2029.

You might need to sit down for this. The wind farms don't use fuel. Wind just happens, it's a natural phenomenon that has no real regard for our stupid "wind farm" even as we're harvesting gigawatts of power the wind doesn't ccare.

If you were thinking "Wait I thought all the providers have these contracts, not just renewables" then er no, they're a subsidy, the CfD is a subsidy scheme. That cheap to make, expensive to run open cycle gas turbine some asshole put on a local industrial estate doesn't get a CfD, it can offer to sell the resulting electricity at market prices, and really the big problem is as you observed, that's possibly less than what it costs to buy fuel. Yeah, it is, bad idea to keep building Open Cycle Gas Turbines I reckon. Sure enough the UK almostly exclusively has more expensive to build but cheaper to run Combined Cycle plants.

CfDs are used to subsidise renewable future power. A long term energy independence strategy. Even if you don't care about the planet warming and the sea levels rising you won't be burning all this gas in a thousand years 'cos there's not enough gas. Whereas the sun will shine until long after we're gone, and the accompanying winds won't stop either.

The size of the subsidy varies, if you're building a pilot plant of a new technology that you're sure will revolutionize clean energy but, alas, no-one ever made one that worked before, the government might be willing to pay you four or five times as much money for your energy, partly because they're not expecting you to actually make any energy because you will likely fail. If your plan's big problem is that it's way less mechanically reliable than you'd like, this is a big incentive to incrementally improve that reliability. If your device that involves being in and out of an incredibly powerful tidal stream of corrosive sea water at freezing temperatures makes power but doesn't crack, tear, fall to pieces or explode in the scheduled period of operation you're that much closer to actually having a useful technology and paying you five times over the odds for the MWh you did make is a reasonable price.

From the first two you can calculate what you need in terms of £/MWh (include whatever profit you want in there). Now you can go to the government and bid that price in the auction. If you win, you have a safe profit and all risk (and upside potential) now lies with the government. As GP said, in the case of 2022 you would have lost out on revenue. But that’s the price foe guaranteed margins

The CfD part is a technical detail. It ~ doesn’t matter whether you first sell the energy and then go to the government for reimbursement. Or whether you sell the energy to the government which then handles the follow up sale.

What I’m not sufficiently familiar with is whether you _have_ to go to such an auction (i.e. whether the auction also is the mechanism of capacity planning) or whether you are free to bypass this system and just hook up your wind park and carry the risk yourself. But functionally this is an insurance scheme for profits, with a market based pricing system

Still missing something in relation to a point above. Does one of these scenarios involve the operator “paying” or “giving back” actual money when the market price is higher than agreed? As opposed to just operating at a loss or less profit?

If you are interested in the mechanics, then _I think_ (i.e. not first hand knowledge) the operator will join each auction (once per day for each 15 min interval of the next day) and offer his energy amount there. He will then receive the integral of (auction price) times (volume) from “the grid”. If that is too little money he then goes to the government and asks for a top up to (contract price) times (volume). If that was too much he has to pay the government the difference.

But again. That is purely mechanical. The end effect of the contracts is you will always receive say 80£ per MWh delivered. Independent of the MWh was worth 500£ in that 15 min interval or -50£. It’s “just” a risk transfer

Ah I’m seeing a possible confusion. There are two different auctions in the description. The first one is for the CfD price and happens (for each project) once. The second one is the daily-price-discovery one and happens daily