UK electricity uses marginal pricing, where the wholesale price is set by the most expensive power plant needed to meet demand at any given time. Gas-fired power plants typically set this price 98% of the time, despite generating only about 30% of Britain’s electricity.
Under this system, all generators receive the same price – even when wind and solar produce cheap electricity, consumers still pay the gas-based rate. This means renewable energy’s cost advantages don’t translate directly to consumer bills, as the marginal (most expensive) generator determines the market-clearing price that everyone receives.
The merit order stacks generators from cheapest (renewables and nuclear at £50-140/MWh) to most expensive (gas at around £611/MWh), but the final generator needed to balance supply and demand sets the price for all. This creates substantial profits for low-cost generators while ensuring expensive peaking plants can recover their costs during the limited times they operate.