The Impact of Natural Gas Prices on Electricity Tariffs in the UK

Mohammad Althaqafi
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Mohammad Althaqafi: Umm Al-Qura University, Saudi Arabia.

International Journal of Energy Economics and Policy, 2023, vol. 13, issue 2, 86-91

Abstract: The study was conducted to know the impact of natural gas prices on electricity tariffs in the UK. Although the United Kingdom doesn t rely directly on Russian gas supplies, still, we are acutely vulnerable to the energy catastrophe that has resulted from the invasion of Ukraine. The UK is part of the European Union and that is a reason the UK energy tariff and natural gas prices are closely connected to the EU. The literature review will elaborate more on the impact of the natural gas price on electricity tariffs in the UK by using an unrestricted vector autoregressive (VAR) model. The historical data on natural gas prices have been collected from the official government website of the UK and from the ofgem website. The sample size was taken annually from January 2010 to August 2020. Our empirical study is close to (Mohammadi, 2009) who investigate the nexus between electricity prices and fossil fuel prices in the U.S economy. The results clearly show that natural gas prices and electricity prices in level form were non-stationary, however, when they are initially differentiated, they become stationary and we used pre root test such as augment Dickey Fuller Test and Phillips-Perron. Secondly, in seven power tariffs, we found a substantial bivariate co-integration long term link between electricity tariff and natural gas prices. Thirdly, the unrestricted vector autoregressive model suggested a significant upward (positive) impact of natural gas price on domestic electricity rates in the short run. In the end, the study found the significant positive impact of the natural gas price and electricity prices on commercial rates and on industrial rates.

Keywords: Natural gas prices; Electricity tariff; VAR Model; Co-integration; United Kingdom; Time Series Analysis (search for similar items in EconPapers)
JEL-codes: Q4 Q41 Q43 (search for similar items in EconPapers)
Date: 2023
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