GB electricity market is based on marginal cost pricing. So average doesn't matter, only most expensive generation does.
The price bid by the marginal generator – the most expensive plant needed to supply power to balance the market – becomes the clearing price, which all generators are paid.
Most generators, then, will earn more than their operating costs. The difference between their costs and the clearing price is what will enable them to recover their capital expenditure and earn a profit. This will, over time, encourage additional investment in generating capacity.
Good article, now I know why my bills are so high.
But why this? Shouldn’t it be an average?
That means that the final price passed on to consumers is solely dependant on what price the most expensive generator is charging.
GB electricity market is based on marginal cost pricing. So average doesn't matter, only most expensive generation does.
The price bid by the marginal generator – the most expensive plant needed to supply power to balance the market – becomes the clearing price, which all generators are paid.
Most generators, then, will earn more than their operating costs. The difference between their costs and the clearing price is what will enable them to recover their capital expenditure and earn a profit. This will, over time, encourage additional investment in generating capacity.