The average home in the UK is paying £250 more for electricity than they should because of a little-known rule, a climate change think-tank has said.
Electricity suppliers in the UK have long paid the highest price all generators agree upon. Now, a new report from climate non-profit Carbon Tracker Initiative (CTI) claims more than seven billion pounds could have been shaved off household bills over the past two years if this system was fairer.
The price paid for electricity by supply companies such as Eon, OVO and SSE is determined by the result of a bidding process. Generators impose the highest bid on all, regardless of how the electricity is produced, with this price then passed on to bills.
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If an average price were used instead, the think tank’s calculations mean roughly £250 could be saved per household, the Express reports.
Initially, electricity prices were pegged to gas-powered generation because it was the cheapest, but this is no longer the case.
The development of more efficient nuclear energy, the harnessing of renewable energies, and rising gas prices mean gas-fired power stations are now among the most expensive ways the UK produces electricity.
In a bid to straighten this out, in the Autumn Budget, Chancellor Jeremy Hunt imposed a temporary 45% windfall tax on the profits of low-carbon generators. The oil and gas sector will face a lower rate of 35% from January 2023 until March 2028.
Combined, the Energy Profits Levy and the Energy Generator Levy are expected to net the Treasury £54billion over six years, which will “help fund energy bill support for households and businesses.”
A spokesperson for the Department for Business, Energy and Industrial Strategy (BEIS) said: "We have already launched a major review into Britain’s electricity market design to radically cut costs of electricity for consumers in the long term, including consulting on changes to the wholesale electricity market that would stop volatile gas prices setting the price of electricity produced by much cheaper renewables.
"To reduce the burden on billpayers in the short term, we have introduced a temporary Electricity Generator Levy on extraordinary returns being made by low-carbon generators, which will help fund energy bill support for households and businesses."
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