CfD projects could reduce wholesale electricity prices by 8%

New renewables projects coming on stream in the coming years could reduce wholesale electricity prices, according to new research.

The latest annual review of energy policy by the UK Energy Research Centre pointed out that wholesale gas price increases have been the biggest driver of electricity price increases since 2021 as many other generators also receive revenues linked to the price of gas.

“We estimate that gas prices currently drive the cost of electricity for up to 90% of generation, exposing consumers to considerable gas-price risk,” said the report.

However, the link between wholesale gas and electricity prices is set to weaken as an increasing volume of new renewables come onstream with prices fixed below the current cost of gas-fired generation.

Together with other structural changes in the market, the report estimates that this could reduce wholesale prices by about £7/MWh, or 8% relative to today’s prices.