A surge in gas prices triggered by the Iran war has caused a knock-on spike in the price of electricity in the UK, Italy and many other European markets. This is because gas almost always sets the price of power in these countries, even though a significant share of their electricity comes from cheaper sources. This “coupling”, which is part of what UK energy secretary Ed Miliband calls the “fossil-fuel rollercoaster”, is due to the “marginal pricing” system used in most electricity markets globally. After another fossil-fuel price shock, just four years after Russia’s invasion of Ukraine, this coupling between gas and electricity prices is once again under the spotlight, in the UK and the EU. There are various alternatives that have been put forward as ways to break – or “decouple” – the link between gas and electricity prices. Electricity prices could be “decoupled” from gas prices by changing the way the market works, but ideas for doing this either have not been tested or have problems of their own. Some people have implied that the UK could insulate itself from high and volatile international gas prices by extracting more gas from the North Sea. However, contrary to false claims by, for example, the hard-right climate-sceptic Reform UK party, this would not be expected to cut energy bills, because gas prices are set on international markets. Finally, electricity prices can be “decoupled” from gas by burning less of it, a shift that is nearly complete in Spain and that is already…
