This discussion paper explores the potential of using the low cost of renewables and nuclear to help keep energy prices down. Crucially it uses existing support schemes and does not require any change to market rules.

Wholesale electricity prices are currently dominated by the very high price of gas. The British Energy Security Strategy proposes a large expansion in wind, solar and nuclear power, all of which can generate electricity more cheaply than gas, at current prices. But this will take many years to come to fruition.

Existing nuclear and renewable generation already provide well over half of electricity generated on the GB system. Could we harness their lower costs more quickly, to help consumers through the coming winter? Changing market rules would be controversial and take time, so is it possible to harness existing rules and institutions to do this?

New renewable and nuclear schemes enter auctions for fixed price contracts, called CfDs. This paper presents the possibility of running such an auction for existing wind, solar, biomass and nuclear generators. We call this a ‘pot zero’ CfD auction and using simple assumptions and analysis of wholesale market price capture for existing generators, provide an indication of how big the financial saving for consumers could be. We assume the scheme is voluntary and present a range of generator participation rates and CfD prices.

Potential savings

Savings start at around £5bn per year or about £70 per household if the CfD price is quite high and around 23% of renewables take part up. If most existing renewables and nuclear take part in the scheme then the saving would be around £22bn per year, the share of which per household would be over £300 per year. Industrial and commercial electricity users would also benefit from lower prices.

The idea is unorthodox and could be controversial, but unlike any other market reform idea, would not require changes to existing market arrangements or policies. Unlike a windfall tax, ‘pot zero’ offers eligible generators an upside – secure revenues into the future. Thus, there could be long-term advantages for low-carbon, domestic generation, as well as significant benefits to consumers as soon as next winter.