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Where the stuff on this blog is something i created it is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License so there are no requirements to attribute - but if you want to mention me as the source that would be nice :¬)

Wednesday, 24 September 2025

Electricity pricing in the UK - a primer

In the UK wholesale electricity market generators sell electricity to suppliers.  In the retail market the suppliers then sell to customers.

The price paid for wholesale electricity on the ‘spot market’, where some 30% of electricity is sold, is largely determined by the price of natural gas because of the ‘marginal cost pricing’ (MCP) system. 

Basically, under MCP, units of electricity are sold at the price of the most expensive unit needed to meet demand at a particular moment in time.  Spot market prices also usually serve as the price reference in long-term contracts.

In each half-hour trading period, electricity generator bid the price they'll  accept to generate electricity.  The bids are accepted in ‘merit order’ until the demand for electricity is met; the cheapest first, and the most expensive last.  However, the price of all units of electricity is set according to the bid price of the most expensive unit needed to meet projected demand: this is the ‘marginal cost’.

 

Source of graphic - see note 1 at foot of post

Renewable generators typically have the lowest costs and so are the first to meet demand. Fossil fuel generators (including gas) often have the highest costs as they must buy fuel to burn, which also has a carbon price on it.   Gas based generators can also quickly burn more or less to match temporary spikes in demand for electricity during a day.

 

Source of graphic - see note 1 at foot of post

As a result, although most electricity is produced using sources with low marginal costs (42% by renewables and 15% from nuclear), the price that is paid for electricity traded on the spot market is often higher, at the marginal cost of generating electricity with gas. (Gas provides some 40% of electricity generation).

MCP also means that the recent increases in the cost of gas have also increased the revenues of other electricity generators, such as some renewable and nuclear generators. These generators operating costs are unlikely to have increased to the same extent.  Many companies have therefore announced large profits. To respond to large profits, the Government introduced a levy of a  45% charge on exceptional profits from low-carbon electricity generators, in effect for large generators until March 2028.

 In 2022 the UK Government ran a consultation on how to separate electricity prices from gas prices.   Some of the proposed changes include:

 

•      Introducing incentives for consumers to draw electricity from the grid at cheaper rates when demand is low or more renewable energy is available.

•      Creating separate markets for renewable and fossil-fuel generated electricity, so renewable energy prices can be set independently from gas.

•      Reforming the capacity market to increase low-carbon flexibility technologies that are more responsive to changes in demand and supply, such as electricity storage.

In the summer of 2025 the Government set out its conclusions from the consultation, which were, in summary

 a)  Reform the GB wide wholesale pricing so customers get fair prices, investors benefit from a more stable and predictable framework so costs can be lowered for retail customers.


b)  Have a clear plan for the future power system so locational considerations can be accurately factored into investment and system planning.


c)   Reform planning, seabed leasing (the process by which new offshore projects are brought forward and sequenced), network build, the connections regime, and transmission network charging.


More detail on the specific and the delivery programmes for the above three ways forward will be available in the future.

Notes on sources of above info

1) https://commonslibrary.parliament.uk/why-is-cheap-renewable-electricity-so-expensive/

2) https://www.gov.uk/government/publications/review-of-electricity-market-arrangements-rema-summer-update-2025/review-of-electricity-market-arrangements-rema-summer-update-2025-accessible-webpage

Monday, 22 September 2025

Wednesday, 17 September 2025

An Overview of the Cabinet Office using data from financial year 2023-24 - an NAO report published February 2025

 Introduction - The National Audit Office (NAO) report on the Cabinet Office for 2023-24 provides an overview of the department's role, financial performance, and key challenges.  

The Cabinet Office acts as the corporate headquarters of the government, supporting the Prime Minister and Cabinet, leading and coordinating cross-departmental initiatives, and driving civil service reform.

Key Priorities and Responsibilities
Financial Overview


Core Functions

  • Supporting the Prime Minister and Cabinet: Providing the necessary infrastructure and support for government decision-making.

  • National Security: Leading and coordinating the government's response to security threats and implementing the refreshed Integrated Review. This includes managing complex, multilateral work related to global conflicts.

  • Modernising and reforming government: Leading Civil Service reform to increase efficiency, effectiveness, and accountability. This includes initiatives like the Civil Service People Plan and the government's location strategy, which aims to move roles outside of London.

  • Cross-government leadership: Acting as the "corporate headquarters" by providing a command centre for crises and leading strategic policy areas. This involves providing direction to other departments and ensuring consistent standards.

Finances - The Cabinet Office's total expenditure is approximately £1 billion per year. The report notes that the department's financial performance is closely scrutinized due to its central role in government.  A significant part of its work involves providing oversight for cross-government spending, which includes managing and tracking efficiency savings. 

The NAO highlights the introduction of a new Government Efficiency Framework in July 2023, which aims to improve the consistency and transparency of how departments calculate and report efficiency savings.

The Cabinet Office group includes 11 arm’s-length bodies. 

Non ministerial Departments

1) UK Statistics Authority - publish their own accounts

Non-departmental public bodies (NDPB) 

2) Civil Service Commission publish their own accounts

3) Equality and Human Rights Commission publish their own accounts

Executive agencies

4) Crown Commercial Servicehelps UK public sector get better value for money from its procurement of common goods and services.

5) Government Property Agencysets & implements strategy for HMG's properties (worth £2068m).

Advisory NDPBs

6) Advisory Committee on Business Appointments

7) Committee on Standards in Public Life

8) House of Lords Appointments Commission

9) Security Vetting Appeals Panel

10) Senior Salaries Review Body

11) Social Mobility Commission 

Challenges and Recommendations

The report identifies several ongoing challenges for the Cabinet Office:

  • Government Efficiency: While the new framework is a positive step, the report notes the difficulty in consistently measuring and reporting efficiency savings across all government departments. The NAO emphasizes the need for a robust and consistent process to ensure accountability.

  • Civil Service Reform: The Cabinet Office is leading efforts to modernize the Civil Service, but the report acknowledges the challenge of ensuring all departments adopt a modern, digital-first approach. It highlights that a significant portion of public sector services are still under-digitized, and there is a fragmented approach to technology and data across government.

  • Government Property: The report also touches on the extensive government property holdings, noting the significant maintenance backlog across various public sector buildings, including courts, jobcentres, and hospitals. This poses a challenge to service delivery and requires strategic oversight from the Cabinet Office's Office of Government Property.

Summary - the NAO report confirms the Cabinet Office's critical and wide-ranging role in central government. It acknowledges the progress made in areas such as national security and civil service reform but also highlights persistent challenges related to financial oversight, digital transformation, and the management of government assets. The report's findings are intended to support parliamentary scrutiny and encourage ongoing improvements in government efficiency and effectiveness.


Source: Edited by a human being adding one graphic and a summary of the arm's-length bodies, and editing text created from this Gemini query "summarise this document  https://www.nao.org.uk/wp-content/uploads/2025/02/2627-Cabinet-Office-Overview-2023-24-FINAL.pdf in 500 words."