Energy bills rise is a 'world crisis' says Knight
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As the energy crisis deepens, British consumers are feeling the knock-on impact of spiralling wholesale gas prices, prompting horror warnings that the price cap could reach £5,500 by April. But while gas bills are going up, so too are electricity bills as a result of an “outdated” link, according to the Octopus Energy, the firm specialising in renewable power.
Because of this system, renewable electricity (renewables are supposed to be cheaper to run) is costing even more than gas.
Mr Jackson said: “The UK has an outdated way of running its electricity market, which is why renewable electricity is costing more during a gas crisis.
“The way it works is that every half hour there’s a single price for electricity in the UK, and it’s set by a process in which National Grid procure the generation to meet our needs from generators every half hour.
“And they pay a single national price to all those generators.
“So, companies like Octopus face a single price regardless of whether we are buying renewable or non-renewable electricity.
“In fact, to make it worse, renewable typically costs more because we either have to pay for certification or to pay for what’s called balancing costs.”
The energy boss called for an overhaul to the system, which Business Secretary Kwasi Kwarteng has said won’t stay forever.
Mr Kwarteng has previously said: “One of the things we are very keen to do in BEIS is to look at the pricing mechanism in the electricity market because it cannot be the case forever that we can link directly our electricity prices to gas prices when gas is only a portion of the electricity generating mix.”
And this is something Mr Jackson would hugely advocate.
He said: “This is bonkers. Fundamentally, we need a market reform that enables all to see the benefit of cheaper, renewable electricity.
“What we really need is market reform and dramatically more renewable generation to bring the cost down.”
But while struggling to access the low cost in one respect, the energy company does have a way of shielding its customers from soaring bills.
Under its “Fan Club” model, Octopus customers living near wind turbines can receive cheaper electricity.
Now extended to three locations, the unique tariff can provide customers a discount of up to 50 percent off the unit rate for 100 percent renewable electricity.
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The company estimates can save households around £350 on their bill annually.
The “Fan Club” model appears to be based on a pricing mechanism called locational marginal pricing.
This is aimed at giving customers access to the cheap cost of renewables in locations where the green energy is produced.
National Grid and Ofgem are said to be exploring locational marginal pricing to reform the wholesale electricity market.
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