The electricity market is a complex beast; people spend their entire careers examining and analysing its inner workings. For most of us, our only interaction with the market is through our electricity provider. We get the monthly bill, try to pay it on time to get the prompt payment discount, and receive a letter almost every year telling us that prices are, surprise surprise, going up. We may occasionally ask ourselves “what’s happened this time to make prices go up?” Usually the price increase is blamed on the transmission companies, but since 2011 electricity prices have been influenced by a new price – the price of carbon.
But just how does the price of carbon affect the price you pay for the electricity you use? Two issues immediately come to mind when thinking about the impact of the carbon price on residential electricity prices: the ‘peakiness’ of residential electricity demand, and uncertainty about the future carbon price.