The government have killed off regional pricing

This is an interesting argument. However, I am sure there are other sides to the story and considerations to be made. Significantly cheaper electricity in one part of the United Kingdom would raise issues where people and businesses were paying more. This topic clearly needs investigating further and looking at what solutions can lead to positive outcomes. Anything that can use more renewables long term has to be a good thing. Getting the infrastructure in place to achieve this could be a different matter.

Reading between the lines (and other sources) it was the south having to pay significantly more for their electricity (postcode lottery) and that is where the greatest number of voters are especially in London (a Labour stronghold) and the southeast. It's never just going to be what is best for the environment or Net Zero. Labour are getting worried that prices are not going to come down anytime soon and they've only got four years to do that. Coherent energy strategies have much longer timescales than governments.

Peter 

There  is one part of the debate on regional pricing which is ignored. That is how renewables are ultimately paid.

There is a great deal of quotes gas sets the market price. Which is true bidding is on 30 minute basis. Bids are accepted via the “Merit Order System” generators with the lowest marginal costs are accepted first. Typically wind, solar, then surprising to many Nuclear. The highest bidder sets the market clearing price which is paid to all previous bidders. 

But many of the renewables are paid according to their Contract for Difference. Which is a 15 year index linked contract. Guaranteeing the payment they receive immaterial of the market  (Clearing Price).

There are offshore wind farms with CfD of greater than £200 per MWh. The average market price has been around £85 per MWh.

Yesterday the price ranged from £37.80 at 14:00 to £129 per MWh at 19:30.  

The CfD is operated by The Low Carbon Contracts Company a private company owned by the government.

In the example above  Offshore Wind CfD = £200 per Mwh. 

Renewables are paid the market rate of £37.80 the LCCC tops up this £162.20 per MHh 

 When market price is £129 the LCCC tops up £71 per MWh.

Onshore wind farms AR6 are around £70 per MWh CfD.

At 14:00 they would be paid the Market price, the LCCC then applies a levy Market price minus the CfD eg at 14:00hrs the levy would be £32.2 per MWh.

The LCCC is funded by a levy on wholesalers ie we the consumer.

The media a government always quote the initial “Strike Price” not the current Strike Price. Ignoring 15 years of inflation.

AR6 onshore quote around £50 per MWH as the initial strike price, the current Strike price is £70+ per MWh

The LCCC data is freely available online.

Good summary there ​@john23. Someone else who's been digging into the nitty gritty of how all this works. Or doesn't, in terms of who gets clobbered for trying to fit renewables into a market that wasn't designed to accommodate them.

Here's a point to ponder, if you are on a wholesale related tariff and your present half hour unit rate is zero or even negative, who is paying the LCCC so that they can compensate the generators on CfDs for the difference between their Strike Price and the wholesale rate set by NESO? It's not me, at least, not most of it if some of it is in the standing charge. As far as I can see it is customers on the SVT and Fixed Price contracts. It’s possible that people on Trackers pay some but not a lotl.

Peter 

Your question relates to who pays when the market goes negative? The times the market goes negative are short one maybe to bid periods. CfD are still paid here is an example

The market goes -£20 ie existing nuclear and CCGT (gas) pay the grid £20 per MWh.

Lets say there is renewable generator with a CfD of £100 per MWh

LCCC pay the renewable as per this calc -£20 - £100(CfD) = £120 per MWh.

The LCCC should have sufficient knowledge of the market when calculating the levy applied to wholesaler (us the consumer) 

If the LCCC ends up in surplus they return that money to the wholesalers. They are no obliged to return those funds to the consumer.

If the market goes negative for 6 bid periods in a row, then CfD are suspended. A highly unlikely occurrence 

Awesome engagement on this thread! It's great to see such a strong grasp of the core market challenges.

Thanks ​@Peter E ​@john23 ​@DavidWSR 

It just doesn’t go negative for short periods it can do this ->

On my best ever day I used about £12 worth of electricty (~48kWh) at the SVT but I also got paid about £1 to do that. The reason for that is that if there is a forecast of a large over production of generation due to gale force winds in the North sea, much higher than the average at that time of year, the NESO set the the wholesale rate to zero or negative. The lowest I’ve ever seen is -19.5p. This is to encourage a Demand Side response rather than paying curtailment fees to the generators which would have been much more expensive.

This is where renewables don’t fit the CfD but it’s the least expensive way of doing it. Because it was the NESO that had set a negative market the generators on CfD still got their strike price from the LCCC. Generators, by themselves, can’t bid negative rates but wind farms often bid zero (or very slightly below zero because there is a cost associated with taking a wind turbine offline). If there are too many bids at zero price then the NESO has to set a negative rate to try an stimulate a demand side response which I’m happy to oblige. I can get a wind forecast out to 48 hours and I can often delay charging to take advantage of these zero or negative rates so sometimes it’s ‘Don’t melt the wiring in the house’ time.

Peter

We are talking 2 different things, I have now idea how Octupus calculates its price. I an sighting the system sell/buy (the grid)

https://bmrs.elexon.co.uk/system-prices

​@Chris_OVO I can’t remember if I told you I spent 20 years on the railway (the last five at Temple Point, Redcliffe Way just round the corner from your Bristol HQ ) and the complexitity of running the railway and the finances associated with that is every bit as complex, unfathamable and mind-bending as the electricity supply industry simply because it has been around for about the same length of time. This is because every year someone makes it just that little bit more complicated and interactive with the other parts because they’ve added something new. It’s taken me 10 years to decompress from the railway but I still remember arcane and obscure bits from time to time. When something goes wrong it is basically impossible to explain why it happened because of the complexity because there is no way of simplifying the reply. I’m rapidly coming to the same conclusion with the electricity supply industry.

The dramatic change was when renewables distorted the market with the introduction of CfD levies. 

Gas often sets the market clearing price — but this is only half the story. Once the market price is established, the Low Carbon Contracts Company (LCCC) calculates a top-up or clawback based on the following formula:

CfD Payment = Strike Price – Market Price

Here are two examples using real-world scenarios:

🔹 Example 1: Offshore Wind Farm

• Current CfD Strike Price: £187/MWh

• Market Price (System Sell Price): £100/MWh

• Top-up Payment: £187 – £100 = £87/MWh
  → The LCCC pays the generator £87 per MWh, so the total income is £187/MWh.

🔹 Example 2: Onshore Wind Farm

• Current CfD Strike Price: £70/MWh

• Market Price: £100/MWh

• Payback (Negative top-up): £70 – £100 = –£30/MWh
  → The generator must pay £30 per MWh back to the LCCC. This is a refund to the system.

• The media, green lobby, and politicians often quote the “initial strike price” (the 2012 price set at contract award).

• But generators are actually paid based on the “current strike price,” which is inflation-indexed, typically adding 35–45% over 10–15 years.

• For example, a 2012 strike price of £100 may be £140+ today.

The public narrative suggests that renewables are always “cheap” because quoted strike prices appear low. But in practice:

• Generators are shielded from market price drops.

• Consumers pay through LCCC top-ups, funded via a levy on suppliers (and ultimately passed to households).

• When prices are high, some low-strike-price generators refund money to the system — but those refunds are paid to suppliers, not automatically returned to consumers.

As you probably know, but also for the benefit of anyone else, there are different trading periods.

Futures market (months ahead) - based on expected demand, bids from generators (some may be offline due to maint etc), average weather conditions. From the average prices the CAP is calculated. This sets the price of the SVT and heavily influences the range of Fixed Price contracts for customers.

Day Ahead market - based on likely demand given weather forecasts, generators actually able to supply including wind and solar. If there is a shortfall then prices rise. If there is a big storm coming in the generators will bid low to stay in the game. This is where Octopus trade for their Agile product. The prices are fixed from 4pm of the day before up 22.30 the next day. It doesn’t matter if it goes pear shaped on the day, the prices are fixed. Tracker tariffs are derived from this as well.

Balancing Mechanism - BM (live) where there is a shortfall the NESO pay BM resources (this is a special contract to provide short notice supply) to come online to maintain the frequency, at sometimes outrageously high rates for short term cover (£2,000+ / MWh). The wind or solar power may not be as high, or the demand is higher than predicted 24 hours before hand. Otherwise the BM resources are paid as a hot spinning reserve in case of a generator going offline suddenly. If there is too much wind or solar or not enough demand at that moment some generators are paid to curtail their output**. The BM also has to take into account local demand/supply and transmission bottlenecks. As a result tens of thousands of (computer) BM instructions can be issued a day, all done by computer except for the 29th May this year when the computer went down and it all had to be done by by phone calls at an average rate of 17 per minute. All day.

There is a fourth stage when things go wrong called the Blame Game where everyone get together in a room, jump up and down, point fingers and shout at everyone else. Same as on the railway after a project.

Peter

** This is why it’s often cheaper to try and stimulate demand side with low/negative prices rather than paying the strike price plus curtailment rate. You might be thinking how do they know what to drop the price to, to stimulate demand but they already have a good idea from the past what the relationship is between price and demand is. It’s known as the price-demand curve just as there is a price-supply curve. Where those two curves intersect is the price where the supply meets the demand and it’s that price that gets set. The demand-price-supply mechanism is used in all three markets but with very different results.

Lets take the day ahead market is around around £80 per Mwh

According to the LCCC AR1 Allocation Round 1 there 27 onshore wind farms with the lowest CfD of around £91 per MWh. The highest in excess of £170 per MWh.

It is my understanding they receive the market price the LCCC (the consumer)  tops up the the to the CfD price. Or indeed if the CfD were below the day ahead market price. The LCCC would apply a levy. But as far as I can see on the LCCC data set there are no AR1 wind farms with a CfD below the current day ahead price.

You are quite correct to point out I had only shown the Balancing price. The period when the balancing price went in excess of £2000.00 MWh was due interconnectors out for maintenance and the predicted output not being achieved.

If you haven't seen this before Squeaky has a very good selection of quick reads in relation to electricity generation. It makes you realise how complex the whole system is.

https://www.squeaky.energy/blog

Peter 

For those of you who would like to explore energy generation and supply, Modo Energy have created a series of videos on YouTube on different topics. It’s a useful resource if you want to do a deeper dive into a particular subject like Battery Energy Supply Systems or Energy trading in the various markets. I’ve found it useful to clarify people’s statements on various topics and often find the that they oversimplified a situation of have it completely wrong.

https://www.youtube.com/@modoenergy