(Reuters) -The UK government on Monday launched a review into Britain's electricity market, seeking ways to lower costs for consumers contending with soaring energy prices.
Proposals out for initial consultation include potential changes to the wholesale electricity market in an effort to stop volatile gas prices from setting the price of electricity when renewable power is much cheaper.
“We’ve just seen the price of offshore UK wind power fall to an all-time low and gas is a shrinking portion of our electricity generating mix, so we need to explore ways of ensuring the electricity market is adapting,” Business and Energy Secretary Kwasi Kwarteng said in a statement.
Under the current system the cost of producing electricity from gas-fired power stations is usually the benchmark for setting the wholesale electricity price that helps to determine how much people pay for their energy.
British and European gas prices have soared over the past year, peaking at record levels after Russia’s invasion of Ukraine and concerns that Russian gas supply to Europe could be severely constrained.
Benchmark wholesale British gas prices are trading about three times higher than a year ago, pushing up wholesale electricity prices by similar levels.
A cap on the most widely used household energy contracts increased by 54% in April, primarily because of high gas prices. That is expected to rise by 60% when the next cap level comes into effect in October, taking average household yearly dual fuel bills to more than 3,200 pounds ($3,829).
The government said it would also look at offering incentives for consumers to use electricity when demand is lower or when high levels of wind or solar power are being generated.
($1 = 0.8357 pounds)
(Reporting by Susanna Twidale in London and Amna Karimi in BengaluruEditing by Shinjini Ganguli and David Goodman)