New Energy Price Cap

Grüne Energie


By Paul Homewood

The new energy price cap is out, and as I predicted a few months ago, prices have fallen significantly, reflecting easing international gas prices:

The new cap has two implications:

Offshore Wind

Whilst CfD strike prices for offshore wind were temporarily lower than wholesale market prices for a short time last year, they are once again considerably higher.

So far this month, the average strike price is £179.74/MWh, compare to a market price of £85.98/MWh. This equates to a full month subsidy of around £100 million.

According to the OFGEM chart above, the market price assumed for the cap is about £140/MWh – the exact figure is not provided as it is deemed proprietary! However their calculations are based on the 3-month historical average, and current wholesale prices have fallen since. According to Catalyst Energy, for instance, day-ahead power prices fell to £100/MWh at the end of April, and seem to have fallen further since.

Although year-ahead prices are in the order of £130/MWh, it would seem that the price cap will be cut again come August.

All of this means, of course, that offshore wind will remain much more expensive than gas power, which usually sets the market price.

Heat Pumps

The fall in both gas and power prices has also affected the relative running costs of heat pumps v gas boilers, in favour of the latter.

Based on a typical domestic gas consumption of 15000 KWh a year, a gas boiler would cost £1200 to run, Assuming boiler efficiency of 85% and heat pump coefficient of performance (COP) of 3.0, itself an optimistic assumption, the heat pump would cost £1275 to run, even before considering the extra cost of providing hot water.