Where does the money go? An analysis of revenues in the GB power sector during the energy crisis

Serguey Maximov, Paul Drummond, Phil McNally and Michael Grubb
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Serguey Maximov: University College London
Paul Drummond: University College London
Phil McNally: University College London

No inetwp207, Working Papers Series from Institute for New Economic Thinking

Abstract: The gas crisis has fed through to a huge impact on wholesale electricity prices in Britain. We use hourly price and generation data to estimate the impact on associated revenues to different types of generators. Given the extent of forward contracting, we complement simple results based on the day-ahead prices ("Case 1") with a more realistic case based on a representative, technology-specific assumptions on forward contracts ("Case 2"). We estimate that revenues to GB generators rose by almost £30bn, from about £20.5bn/yr (pre-Covid) to £49.5bn in 2022. About 70% of this accrued to gas generators (from about £6bn/yr to £19bn) and renewable generators with Renewable Obligation Certification (from £7.7bn to £15.5bn). There are various indications that the increase in revenues to gas plants significantly exceeded the rise in their input costs, and no reason to think the generating cost of these renewables significantly increased. Nuclear, and some other biomass and renewables also benefited. We find that the Electricity Generation Levy, introduced in Jan 2023, would have had limited impact on these numbers if it had existed in 2022 and is likely to have less impact in 2023. Finally, we discuss reasons and potential implications of the findings.

Keywords: Electricity market design; energy crisis; renewable energy; CfD; long-run contracts; energy transition; energy poverty. (search for similar items in EconPapers)
JEL-codes: L16 L51 L94 L98 Q28 Q4 Q58 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2023-05-16
New Economics Papers: this item is included in nep-ene, nep-env, nep-ger and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:inetwp207

DOI: 10.36687/inetwp207

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