Why gas still rules power prices

The war in the Middle East has triggered a global energy crisis, with gas prices in Europe more than doubling since the conflict began, directly driving up electricity costs worldwide. Despite massive investments in wind and solar, the price of electricity remains tied to the cost of natural gas because of how power markets operate: the last, most expensive power source needed to meet demand—usually gas-fired plants—sets the price for all electricity. This economic principle, known as marginal cost pricing, means that even when renewables dominate the grid, the system still relies on gas for backup, making power bills vulnerable to geopolitical shocks. Yet some countries like Ethiopia are proving that a gas-free energy system is possible: powered by abundant hydropower, Ethiopia offers some of the cheapest electricity in the world, enabling affordable electric transport and business growth. The episode argues that while gas will remain a critical backup for now, the long-term solution lies in expanding domestic renewable generation and grid resilience to break the link between global gas volatility and local electricity prices.