A new University College London (UCL) report analysing revenues in the GB power sector has found that consumers paid £29 billion more in 2022 compared to pre-Covid levels, a rise of about £500 per person.
At the same time, UCL’s study claimed, electricity generators saw “enormous increases in revenue beyond their costs”. The report, Where does the money go? An analysis of revenues in the GB power sector during the energy crisis uses public datasets to analyse the structure of revenues generated by different sources of energy in the UK.
About 70% of the £29 billion revenue increase went to natural gas and renewable energy producers with Renewable Obligation Credits (ROCs). The other 30% went to nuclear, biomass and coal generation.
The £19 billion in revenues by gas generators in 2022 represents a 217% increase from the £6 billion they recorded in 2018/19.
Lead author Professor Michael Grubb said: “The exploding costs to consumers over the last year highlight the need to disentangle the UK’s electricity market from the volatile prices of fossil fuels, and to better embrace the cost predictability and stability that renewable energy can provide.”
The report’s authors cautioned that confidentiality in energy contracts meant that precise profit margin figures were hard to calculate and their estimates were based on “representative average contract structures”. Profit margins were likely higher in the renewables sector, which enjoyed higher revenues but not higher costs. The UK government introduced an Electricity Generator Levy on 1 January 2023 to capture some of these increased profits.
“While much of the increasing price of gas-generated electricity was caused by the rising wholesale cost of natural gas, the report provides evidence that gas producers increased their profit margins as well… researchers conclude that producers raised the price of electricity significantly more than the increased cost of their gas inputs.” UCL said.
