Why does gas set the price of electricity, even when most power is cheaper?
In 2021 gas made 43% of the UK's electricity but set the wholesale price 97% of the time.
Because of how the electricity market is built. Generators offer power at a price, and offers are accepted from the cheapest to the most expensive until demand is met. That ordering is called the . In each trading period every generator is then paid the same price: the price set by the last, most expensive unit needed, the plant "at the margin". In Britain that last unit is often a gas-fired power station.
So gas can set the price even when it produces only part of the power. A study in the journal Energy Reports found that in 2021 gas made 43% of UK electricity but set the price 97% of the time. Where nuclear dominates, as in France, gas set the price only 7% of the time; in coal-heavy Germany, 24%.
Step 1: Offers come in
Each generator names a price
Step 2: Cheapest first
Wind and solar, with no fuel to buy, tend to be lowest
Step 3: Add offers until demand is met
Dearer plants are added as needed
Step 4: The last unit sets the price
In the UK that is often gas; everyone gets that price
Why work this way? If generators were paid what they bid, instead of the highest accepted price, cheap generators would bid higher and guess the market price, which makes the market open to . Gas also does a vital job: it can more easily be ramped up or scaled back than other sources, so it is the one called on to close the gap.
How often gas set the wholesale price in 2021
% of the time
| Gas set the price | |
|---|---|
| UK | 97 % of the time |
| France | 7 % of the time |
| Germany | 24 % of the time |
The link is loosening. In 2026, gas set the price of electricity 60% of the time, compared with more than 90% in 2021. That is because more wind, solar and storage are on the system. Analysis by the ECIU suggests that renewables reduced UK electricity prices by a third in 2025.
Try it
Gas price in, electricity fuel cost out
y = 2x + 0
Challenge · A plant uses 2 units of gas per unit of electricity. How high must gas rise to push the fuel cost of electricity to £150?
Quiz me
0/3
Recap
The last, dearest plant needed sets the price for everyone, so the share of time gas is at the margin matters more than its share of power.
💡 A trick to remember it · Everyone at the table splits the bill at the price of the priciest dish ordered, even if most of the dishes were cheap.
Surprising fact · Gas set the UK's wholesale power price 97% of the time in 2021, with only 43% of the electricity.
Connects to
- 🚢 How does Britain buy its gas: the NBP, LNG ships and Norwegian pipelines?
- 🧾 What is in your energy bill, and why is there a standing charge?
- 🏭 Why do some power plants never switch off while others run a few hours a year?
- 🛰️ Why would anyone put solar panels in space instead of on Earth?
- ⚖️ Who actually decides what things cost?
- Electrical grid
- Natural gas
Sources (4)
No source, no claim. Every fact in this lesson (14 claims) cites at least one of these.