Consumers faced soaring energy costs in the UK while electricity generators enjoyed lucrative profits exceeding their expenses, as revealed by a recent UCL study.
Examining the revenue streams of the country’s electricity generation industry during the 2022 energy crisis, researchers highlighted the financial landscape of different power sources.
The UCL study found that last year, UK consumers paid an astounding £29 billion extra compared to pre-Covid levels, equivalent to about £500 per person.
Natural gas and renewable energy producers with “renewable obligation credits” claimed approximately 70% of this revenue surge.
Meanwhile, the structure of the electricity market, which pegs prices to the costliest generator, burdened consumers with higher costs.
The conflict in Ukraine escalated natural gas prices, impacting both fossil fuel and renewable electricity expenses.
The study cautioned that confidentiality and varied energy contracts made it challenging to calculate precise profit margins.
However, renewable energy sources, unaffected by significant production cost increases, likely witnessed wider profit margins, according to the study.
These excessive profits led to the introduction of the Electricity Generator Levy or “windfall tax”.
While it could have curtailed renewable generator revenues by 12% to 15%, its impact on consumer costs would depend on whether the captured revenue would be directly used as subsidies.
Gas producers also raised electricity prices beyond the increased gas input costs, as indicated by the “spark spread” measure.
Factors like limited access to affordable electricity from mainland Europe and insufficient price competition between gas and renewables contributed to this phenomenon.