The end of Carbon Price Support - who wins?
by Tim Pratt
From April 2028 Carbon Price Support (CPS) on fuel used to generate electricity will be removed. Is this good news?
The general message from government is of course that this is ‘good news’ because it will reduce electricity prices. In complete isolation of everything else this is right, a lower fuel cost by whatever means should translate into lower electricity prices. In very, very simple terms it ought to work something like this:
The British Industrial Competitiveness Scheme (BICS) will exempt certain businesses (notably not food producers) from some of the ‘green costs’ added to import electricity bills. This doesn’t reduce the total amount that has to be paid it just means that it is spread across fewer consumers, i.e. those that still have to pay it will end up paying more. The removal of CPS is expected compensate for this so that non-BICS consumers will neither win nor lose overall. The CPS ‘maths’ looks like this:
Whenever the electricity price is set by a large gas generator (still a lot of the time),
Electrical efficiency of a modern Combined Cycle Gas Turbine is circa 50% so you need 2kWh of gas to generate 1kWh of electricity
Cost of CPS 0.331p/kWh of gas = 0.662p/kWh of electricity generated
So by reducing the cost to generate the electricity that sets the wholesale price, the price should go down by 0.662p/kWh.
But as always there are some losers:
Smaller generators of renewable electricity
Ultimately, whether on fixed-price or flexible PPAs, all generators are exposed to the market price (unless they’re on the Contracts for Difference scheme). Renewable generators do not pay CPS on their ‘fuel’ so there is no win from its removal to offset the expected reduction in electricity price.
Operators of <2MWe Combined Heat & Power (CHP)
CHP is a very efficient way of using fuel to generate electricity and (unlike large power stations) the heat is also put to good use. Any CHP that has an electrical output of 2MW or has never paid CPS, so just like a renewable electricity generator they will get no win but the electricity they produce will be worth less.
Operators of >2MWe CHP
Any CHP that has an electrical output of >2MW does pay CPS. However, a good CHP that uses most of the heat produced usually pays no more than 50% of the full rate of CPS and in some circumstances (its complicated!) they even pay no CPS at all. So whilst some will make a saving on CPS, the fact that most don’t pay the full rate will mean that the saving will be more than offset by lower electricity prices.
So the removal of CPS ought to be cost neutral to large gas fuelled electricity generators. But smaller generators, be they renewable or high efficiency CHP, will likely lose out; I wonder whether this was considered…
There’s also the c. £1b p.a. of CPS payments that the government currently receive that they will need to fund / replace somehow.
The government announcement is here: https://questions-statements.parliament.uk/written-statements/detail/2026-04-16/hcws1519
