Electricity: Prices
The question
To ask the Chancellor of the Exchequer, what assessment her Department has made of the potential impact of marginal electricity pricing on the Consumer Prices Index since July 2024.
Answered by Torsten Bell
Forecasting the economy, including the impact of Government policy decisions on inflation, is the responsibility of the independent Office for Budget Responsibility (OBR). The OBR has not published a specific estimate of the impact of marginal electricity pricing on Consumer Price Index inflation.
The electricity market operates on the principle of marginal cost pricing, where gas-fired generation frequently sets the wholesale price, meaning electricity prices have closely tracked gas prices. This is link is already weakening as more renewable energy comes online. The Government is taking further steps to reduce this link: we will set out plans for legacy low-carbon generators to move onto fixed-price arrangements from 2027, and the Electricity Generator Levy's rate has been increased, and it will be extended beyond its scheduled end date. Further details on these measures will be provided in due course. As reliance on gas falls, electricity prices are expected to be set increasingly by lower-cost generation, including renewables.
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