Wholesale electricity prices are lower when the wind is blowing hard. This is true across the year. If the UK installs more turbines, there will be more wind power at all times, tending to further pull down the cost of electricity for all.

How much might electricity consumers benefit if the country added more wind capacity? I looked at the data for the last 12 months and found that just by adding the turbines that are already planned the UK might save over £3bn a year in electricity costs. This calculation is based on the assumption that the relationship over the last year between wind output and wholesale prices persists into the future. Increasing wind capacity still further could add to these savings.

Put another way, the UK government’s net zero rollback, and its reluctance to liberate onshore wind, will cost people money.

The analysis

Across the year, the correlation between wind speeds and power prices is reasonably robust. Why is this the case? If wind power is abundant only the most efficient gas power plants need to operate and they bid into the hourly power auctions at a lower price than the older and less efficient stations. And windy conditions in the UK usually mean that it’s windy elsewhere in Europe, which also helps reduce the prices of electricity coming into the country through undersea connectors.

To give one example, the average price on the Nordpool ‘day ahead’ exchange was £81.6 per megawatt hour on December 30 2022 when wind provided the largest percentage of UK electricity of any day in the last year.[1] One day later and the price was £130.6 as a result of wind cutting its contribution to little more than half the level of the previous 24 hours.

Wind provided about 26.8% of all UK electricity in 2022.[2] The new turbines already planned would increase that by about 24%.[3] If the wind farms match the productivity of existing turbines, that means the amount of electricity generated will be about 24% higher than today. This will push prices down. My analysis suggests that if the last year’s patterns were repeated the average price of the electricity sold on the wholesale market might fall by 10.5% when these wind farms are complete. Further increases in wind capacity would proportionately increase this saving.

Much of the UK’s electricity consumption is bought and sold on the wholesale market. My analysis uses data from the Nordpool ‘day ahead’ exchange. But large amounts of power are bought and sold via other mechanisms, such as direct power purchase agreements or longer term contracts. Of course the wholesale price of power does not directly affect these agreements. But in the course of time lower ‘day ahead’ wholesale prices will change the price in all contractual agreements.

If all electricity prices fell by the 10.5% estimated in the previous paragraph as the consequence of the planned wind expansion, the eventual reduction could cut the total cost of electricity by about £3.3bn a year. Of course we cannot be sure that the correlation between wind availability and power prices will continue to hold but it is a plausible possibility.

My purpose in calculating these numbers was to quantify the possible beneficial impact from increasing the amount of wind power available on the UK grid. This is a social and a shared value resulting from the private investment in new wind turbines. In addition, there is a gain from the reduction in carbon emissions.

We should put these possible savings in context. The 6.7 gigawatt already-planned expansion in UK wind power will cost private capital about £10 billion, assuming a 50:50 mixture of £1m per megawatt for onshore and £2m for offshore wind. The £3.3 bn saving in wholesale prices as a result of this investment is a profoundly attractive social return (in addition to the private profit return arising from the £10bn spent on expanding wind availability.

Apppendix

These are outline details of the method I used.

· For each day in the year to the end of September 2023, I noted down the average daily price of electricity on the Nordpool ‘day ahead’ wholesale market, expressed in £ per megawatt hour. (To avoid any accusations that I broke Nordpool’s rules by using automatic copying of its data, I took down each number manually).

· For each of these days, I also noted the percentage of the UK’s electricity that was generated by wind. I used the numbers from the Gridwatch web site, copying each figure from the charts on its main page. (These numbers exclude the electricity generated by smaller wind farms not connected to the high voltage National Grid network).

· I then divided the year into months because electricity consumption and production patterns vary through the year. And, particularly in the last year, rapidly varying gas costs have strongly affected the price at which CCGT suppliers are willing to supply power into the UK at different times.

· For each month in the year, I constructed a chart that plots the percentage of power output provided by wind and the average price for each day on an x-y chart. The wind percentage sets the position on the x axis, the average price on the y axis.

· I then asked Excel to calculate the line of the trend for each month.[4] The equation for the trend line predicts the value of y (the price) dependent on the percentage of electricity provided by wind and a base number that estimates the price if there had been no wind during that day. For example, the equation for January 2023 is y = -£1.6802x + £187.36. This indicates that if there had been no wind on a day during that month the price would have been expected to be £187.36 per megawatt hour. Each one percentage point increase in the percentage of power provided by wind typically reduced the wholesale price by £1.6802.

· The January 2023 chart is shown again below.

The value called R2 on this chart is a measure of the closeness of the correlation between the two variables. A perfect correlation, in which y values are 100% determined by changes in the x number produces an R2 figure of 1. A complete absence of correlation results in an R2 of 0. The actual figure of 0.69 for January suggests a moderately strong but not complete link. The average across all months was lower at 0.47, implying that factors other than wind also had substantial effects on the electricity price.
I then took the average wind percentage for each month (it was 33% in January) and increased this figure by 24%. Why 24%? Because current total wind capacity is about 26.9 gigawatts and an additional 6.7 gigawatts are now planned to be installed, or 24% of today’s total.
I used the trend line for each month to estimate how much of a reduction in the wholesale price would be obtained by increasing the percentage of electricity that is delivered by wind by 24%. This pushes up January 2023 from 33% to just under 41% of total supply. Using this trend line, the average wholesale price would fall from about £131.9 to about £118.6, a saving of approximately 10%.
The implication of this number is that the total cost of the electricity supplied in the specific month of January 2023 would have been 10% lower if all the planned extra 6.7 gigawatts had already been installed. The percentage across all the twelve months ranged from 1.1% in May 2023 to 22.2% in the extraordinary month of December 2022 when gas prices reached historic highs. The average across all 12 months was similar to January’s figure at around 10.5%.
I continued this exercise by calculating how much might have been saved in terms of £ across the year if the extra wind capacity had already been in place. National Grid provides each month a figure for the amount of electricity that flows across its network.[5] We can use this estimate as a way of calculating the savings from having more wind power in the UK by multiplying the amount of electricity used by the prospective savings in £ per megawatt hour. January’s figures would have resulted in a total saving of over £100 million.
The total cost reductions from having 24% more wind across the 12 month period might have amounted to over £3.3billion, or about £50 per head of UK population. However this figure would have been concentrated in the months of October 2022 to January 2023. The savings in May 2023 could have been as low as £18m, compared to the £billion plus in December 2022. This a reflection of the very low correlation of wind power and wholesale prices in May 2023 compared to the other months.
The May 2023 (lowest R2) and December 2022 (highest R2) charts are shown below. May was a period of relatively low gas prices by recent standards while December’s were astronomically high. It looks as though wind power has more effect on the wholesale price of electricity when gas prices are elevated. This may mean that if gas prices revert to historical averages the deflationary impact of wind will be reduced.

Next steps and issues with the analysis

Solar power should be added to the analysis because it also tends to push down the wholesale price of power, particularly on sunny summer afternoons.
It would be better to split each month into weekdays and weekends to ensure that the different demand patterns are properly reflected in the analysis.
I should normalise the data to take out the effects of changing gas prices on the wholesale price of power.
The core hypothesis in this analysis is that wind power, which has no measurable cost to produce, deflates the overall market price when it floods on to the networks. This is highly plausible, but we cannot be sure that further increases in wind power will continue to deflate wholesale prices.
At some points during very windy weather the UK already has enough renewable electricity to need no fossil fuel power. Gas is still being consumed in order to have a dispatchable power source that can be quickly varied. If we add a lot of new wind power, some of this electricity will have to be curtailed implying it will have no effect on wholesale prices.
- It could be that the deflationary impact of high winds arises largely because the continental European price of power is being driven at the same time, flooding the UK interconnectors with cheap electricity. If the UK increases its wind capacity this will leave European prices unaffected. In other words, the increase in UK turbines may have less effect on power prices than I am calculating.
- On the other hand, the most obvious downward effect of high winds on the UK power market occurs when wind supplies more than 45% of electricity needs. Any increase in wind capacity will make those events more frequent and so tend to exaggerate the impact on wholesale prices.

[1] The day ahead contract is the price agreed between buyers and sellers for the delivery of electricity in one hour periods on the following day. This market operates for seven days a week.

[2] Source: National Grid, https://www.nationalgrideso.com/electricity-explained/electricity-and-me/great-britains-monthly-electricity-stats

[3] I’m not sure whether or not this figure includes the wind farms that are currently on hold because the developers are unsure whether to proceed after facing much higher costs. I’m assuming that the wind farms waiting to be built are equally productive as the existing stock of onshore and offshore turbines. This is probably a pessimistic assumption since turbines are becoming larger and generate more electricity.

[4] Using linear regression.

[5] This is not a perfect proxy for the actual amount of electricity produced. Some electricity, such as that delivered by solar farms and small wind farms, does not travel on the National Grid high voltage network but stays on the local lower voltage distribution systems.