Wholesale vs. Retail electricity prices (UK example)


 

 

NOTES:

This chart is taken from OFGEM, the UK’s energy market regulator, and shows what makes up the average domestic customer electricity bill here in the UK. You can find the chart here

The most obvious takeaway is that the wholesale cost of electricity is less than a third of what end-users pay (the retail price). That’s a very important point, because most talk about low, falling, peaking or even negative prices takes place at the wholesale level – but is very much disconnected from the end-customer experience of pricing.

Firstly, domestic consumers are not exposed to the variability of market prices (other than through some new and rare ‘tracker’ tariffs that have recently emerged). Commercial consumers often have a closer relationship with them (in particular peak-time charges), but this is still indirect.

Secondly, when making up such a small part of the whole, wholesale prices can fall even while retail prices rise. For example increasing grid or environmental costs, since they are a bigger share of the retail price total, can outweigh wholesale reductions.

Indeed this has been the exact experience in some markets, not just the UK. And it’s why the public, understandably, can sometimes be sceptical of claims that ‘renewables decrease electricity prices’ when faced with bills that have gone higher. What matters to them is not what happens at the wholesale level, but what happens at the whole system level.

Understanding this is key in ensuring continued public ‘buy-in’ for transition within power systems.

 

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