UK power is still priced by gas. Buyers need new structures

Recent instability in the Middle East is again highlighting a structural feature of European electricity markets.

Global gas prices respond quickly to geopolitical risk. When supply routes appear vulnerable, traders adjust expectations and prices move accordingly.

Because gas-fired generation frequently sets the marginal price in electricity markets, those movements transmit directly into power prices.

The UK remains structurally exposed to this mechanism.

Even as renewable generation expands, wholesale electricity pricing continues to reflect the marginal cost of gas generation. When gas prices move sharply, power prices typically follow.

For large energy users, this transmission mechanism is increasingly visible.

Manufacturers, transport operators, infrastructure providers and data centres can see electricity price volatility appear almost immediately after events in global fuel markets.

What follows is often predictable.

When markets move sharply, businesses that have been relatively passive about energy procurement become highly active. They contact brokers, reassess positions and look for ways to fix pricing.

The difficulty is that these conversations tend to happen after markets have already moved.

Forward prices incorporate the new risk environment. Contracts are signed at elevated levels. Buyers enter the market at the same time as everyone else, contracting into pricing shaped by the latest shock rather than structured resilience.

This is not simply bad timing. It is a structural consequence of procurement models built around annual contracting cycles.

Most businesses still purchase electricity through fixed contracts reviewed once per year. Prices are agreed against the forward curve at a single point in time.

In a relatively stable fuel market this approach provided predictability.

In a volatile market it can embed risk.

Forward prices often incorporate geopolitical risk premiums. Once contracts are signed, businesses remain exposed to those assumptions for extended periods, regardless of how market conditions evolve. Annual procurement can also disconnect purchasing decisions from the real-time structure of the electricity system.

This becomes more material as renewable generation grows.

Wind and solar operate with fundamentally different cost dynamics from fossil fuel generation. Once operational, their marginal cost is low and not directly linked to global fuel markets.

The presence of renewable generation therefore creates the possibility of different procurement structures.

If renewable supply is purchased through static annual averages, much of its resilience to fuel price volatility is diluted. Pricing remains anchored to wholesale expectations influenced by gas.

If supply and demand are matched more closely by time and location, pricing can track the underlying economics of renewable generation rather than gas-driven market benchmarks.

Within structured frameworks, large energy users can contract directly with renewable generators where settlement reflects time-aligned production and consumption.

UrbanChain operates private energy markets built around this structure. By aligning contracts with real production and demand patterns, rather than annualised wholesale averages, pricing can sit closer to the underlying economics of renewable generation. In practice, this matching efficiency has delivered around a 20 per cent improvement in realised pricing for generators while also reducing energy costs for buyers by around 20 per cent.

Electricity markets remain integrated infrastructure and wholesale price formation still exists. But procurement architecture can materially alter exposure.

For energy intensive sectors, that distinction is becoming increasingly relevant.

Geopolitical instability will continue to move global gas markets. UK power prices will continue to respond.

But electricity systems themselves are changing. As renewable penetration increases, new ways of structuring supply and demand are emerging that are less dependent on volatile fuel markets.

For large energy users, the question is no longer simply when to fix.

It is how procurement is structured.