Why does electricity track gas prices when much power is renewable?

Because Britain's wholesale electricity market pays every generator in a given period the price set by the last, most expensive source needed to meet demand. Gas power stations are often that last source, so gas sets the price even when much of the electricity comes from wind, solar and nuclear.

How the pricing works

Ofgem calls it marginal pricing. Cheaper sources are used first. The price at any moment is set by the dearest source still needed, and that is frequently gas. Ofgem says gas can set the wholesale price a large majority of the time in Great Britain, and, citing NESO modelling, that this could fall to around 30% of the time by 2030 as renewables and storage grow.

Why renewables do not simply lower your price

• A windy day cuts the wholesale price in that period, but when the wind drops, gas fills the gap and the price rises again.
• Your supplier buys ahead for the contract term, so the price you pay reflects an average of expected prices, not one windy day.
• Wholesale costs are only a part of a bill. Ofgem puts them at around 40% of a typical household energy bill. The rest is network, policy and supplier costs, covered in non-commodity charges.

A worked example

Suppose gas wholesale rises and lifts your electricity wholesale cost by 2p/kWh. If you use 20,000 kWh, that is 20,000 × £0.02 = £400 on the energy element, and VAT at 20% brings it to £480. If your gas price rises too, both bills are hit at once. This is why a gas price shock reaches power bills as well as heating bills.

In the other direction, if your fixed contract already locked in the price, you will not feel the rise until renewal. See business energy renewals.

What it means for you

1. Your electricity contract choice is partly a bet on gas, even if you use no gas.
2. Fixed deals give certainty for the term. Flexible ones follow the market. See fixed vs flexible.
3. Cutting electricity use is the most direct protection.

When a news story says gas prices are up, check your contract end date. If it is months away, you have time to plan. If it has already rolled onto a default rate, act at once.

Is the link breaking?

Slowly, and only in part. As more wind, solar and storage come on, there will be more periods when gas does not set the price. The modelling Ofgem cites points to a fall in how often it does, but it describes this as a projection to 2030, not a guarantee. For now, plan on gas still mattering to your electricity price.

Next steps

For the full chain from wholesale to your bill, read how business energy prices are set, and for outlook see the price forecast.