Gas-fired power stations across the UK made around £4 billion in profits and an 8.5% return between 2021 and 2022, according to research from University College London (UCL).
The study, supported by E3G, examined the annual profits of gas power stations between 2019 and 2024. It found profit margins reached almost 20% during the height of the energy crisis, compared with a typical benchmark of around 7-10%.
The research suggests the electricity market structure was the main driver of the additional profits, rather than any malpractice by generators.
According to the analysis, the high returns increased household electricity bills by around £49 per household in 2021 and £68 in 2022, in addition to increases caused by rising gas costs.
Gas generators play an important role in balancing the electricity system, particularly as the UK adds more renewable generation. However, the report argues that current market arrangements can create uncertainty for backup generators while exposing consumers to higher costs when market prices rise sharply.
Under the existing wholesale market, generators receive the price set by the most expensive generator needed to meet demand. The researchers argue that this structure is becoming less suitable as the electricity system moves towards greater reliance on renewables.
The report proposes replacing volatile wholesale revenues for gas generators with competitively auctioned, fixed-price contracts. It says this could provide greater certainty for investors while limiting unexpected costs for consumers.
The study argues that such reforms could also improve investment decisions by allowing generation to be better coordinated with available network capacity.
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