To ensure that we have enough energy when we need it our energy systems are sized to meet the maximum demand level that we can expect. The UK electricity system has about 75GW of capacity, on average it runs at 50% capacity ie 32GW. In late afternoons in winter demand can get to 60GW.
As demand increases, we rely on increasingly expensive forms of generation, and as we operate what is known as a ‘pay as cleared’ market system, everyone pays the highest price for electricity at these times, even if most of the electricity would have been cheaper.
Sounds crazy?
It sort of is, but isn’t. The wind farms that produce cheap electricity were built knowing this is how the system works, and a mechanism called a Contract for Difference means they get the same price regardless of the actual market price. In the UK this CfD mechanism is governed by the Low Carbon Contracts Company who balance out the winners and losers.
Today, we have about 34GW of renewables and nuclear capacity which is why we can run the electricity system 100% green on some mild and windy days. But, given the intermittency of renewables, we are going to be reliant on gas generation for many years.
It’s worth putting electricity into the context of all UK energy, including oil, petrol and gas used for heating, this is a 200GW energy system, this needs to move to a low carbon system.
The truth is that we are all going to be paying a lot more for our energy, my guess is that it will increase from about 10% of GDP today to 20% within 15 years, and this might include even higher prices at peak times.
