When we hear about the “strike price” being agreed between the UK government’s Department of Energy and Climate Change and a company, it is in effect a guaranteed price over a period of time. Knowing in advance the price that will be paid enables a generator to better plan its business and often helps it to attract investment. In other words it can predict its income. If the wholesale price for electricity is below the rate of the strike price, the amount the company gets is in effect topped up by government. However, if wholesale prices rise above the strike price, as is expected over time, and therefore the generator is getting more money for its electricity, then the extra is paid back to government.
BBC 3rd Feb 2016 read more »