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

Author

Listed:
  • S. A. Maximov

    (University College London)

  • P. Drummond

    (University College London)

  • P. McNally

    (University College London)

  • M. Grubb

    (University College London)

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.

Suggested Citation

  • S. A. Maximov & P. Drummond & P. McNally & M. Grubb, 2023. "Where does the money go? An analysis of revenues in the GB power sector during the energy crisis," Working Papers Series inetwp207, Institute for New Economic Thinking.
    • Handle: RePEc:thk:wpaper:inetwp207
    DOI: 10.36687/inetwp207
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    References listed on IDEAS

    as
    1. Michael Grubb & David Newbery, 2018. "UK Electricity Market Reform and the Energy Transition:Emerging Lessons," The Energy Journal, , vol. 39(6), pages 1-26, November.
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    More about this item

    Keywords

    Electricity market design; energy crisis; renewable energy; CfD; long-run contracts; energy transition; energy poverty.;
    All these keywords.

    JEL classification:

    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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