Why Britain pays such a crippling price for electricity. Decades of energy policy failure have left businesses and households picking up the bill. All across Britain today, businesses and households are complaining about the seemingly unstoppable rise of electricity prices. In the Government’s new industrial strategy, ministers singled out the problem as one of the biggest challenges facing domestic factories. And at the same time, regulator Ofgem has warned that higher prices are forcing more households into poverty. Ed Miliband, the Energy Secretary, blames the rise on our dependence on gas for generating electricity. His critics claim it is the Government’s gung-ho pursuit of net zero that is responsible. Even those at the top in Westminster struggle to fully explain just how Britain became saddled with such crippling electricity costs. When Labour’s Sarah Jones, the industry minister, was quizzed about the cause on BBC Radio 4’s PM programme last week, she said the full reasons “would take all day to explain”. France, she said, was cheaper, because it had “huge amounts of nuclear power” while Germany “has been better historically in terms of industrial energy prices because they’ve put extra costs on to consumer bills”. That answer hinted at the failures of past governments to build new nuclear power stations. But it also failed to mention that nearly of a quarter of Germany’s power is generated by the cheapest fuel of all: coal. However, another reason Jones was unable to unpick the cause is the sheer complexity of our energy bills. They include not just the cost of power but also a multitude of taxes, green levies and other charges that have been introduced over time. “Growing complexity is a very serious issue,” says Michael Grubb, professor of energy and climate change at University College London. “It’s hard for politicians to understand. And that makes it easier for companies to game the system or to lobby for stuff that sounds plausible.” So how did things get like this? the amount of power you consume only accounts for about one third of your monthly bill. Another 23pc pays for grid costs such as transmission and distribution, while 20pc pays for green energy subsidies. Another 23pc is set aside for miscellaneous items such as supplier profits, operating costs, metering and bad debt provisions. “Fundamentally, you’ve got the price of electricity, then you’ve got the costs of distributing it, and then you’ve got all sorts of levies and charges,” says Michael Liebreich, an independent energy consultant and investor. At the moment, the biggest single factor affecting electricity prices is gas. The rise of renewables is now pushing gas down the pecking order of the power system as well. But because of a market system called “marginal pricing”, gas still continues to influence prices heavily. For instance, a study in the journal Energy Reports found that in 2021, gas was used to generate around 43pc of Britain’s electricity but set the national power price 97pc of the time. The renewables rollout is also leaving us more exposed to gas in other ways, too. We have not yet upgraded the power network to carry all the electricity being generated by wind farms in Scotland, so when the grid becomes too congested, we are instead switching turbines off. At the same time, grid operators will then fire up a gas plant elsewhere to make sure demand is met. Prof Grubb, at UCL, says Britain could consider boosting power supplies by building more nuclear power stations, with all but one of the existing fleet set to close by the end of this decade. But nuclear plants are not cheap. They take years to build, cost tens of billions of pounds and will also generate electricity for significantly higher prices than gas plants. Not to mention that Hinkley Point C in Somerset has busted its budget several times over, and is currently forecast to cost up to £47bn. Another option being put forward is market reform. Octopus boss Jackson and Liebreich both advocate so-called zonal pricing, which would split the country’s electricity market into regions. Each would have its own wholesale price. This would mean that when there is too much wind power in Scotland, prices would plummet, while in other areas, higher prices would incentivise the construction of new wind farms closer to cities. Meanwhile, the Climate Change Committee has called for ministers to take levies off electricity bills to make it cheaper for people to own electric cars and heat pumps. Yet this idea is riven with political risk, not least because ministers would have to make up the revenue either by shifting the levies to gas bills or general taxation.
Telegraph 29th June 2025 read more »
