What’s really causing our high energy bills? (spoiler alert – it’s NOT renewables)
By Claire (our Producer) & Tim (Community Energy Plus)
We’re producing masses of renewable energy these days in the UK… and yet our electricity bills are higher than ever. So should we just scrap Net Zero?
You might see this argument around a lot these days – and at first glance it might seem like common sense. So it’s important to understand what’s really causing our high bills…. (spoiler alert – it’s NOT renewables).
In 2024, we produced more electricity from wind in the UK than any other source, marking the first time in 140 years that a fossil fuel was not in the top spot.
So why hasn’t this brought down the prices of our bills?? The wind (and sun) are free, after all!
Currently, our electricity comes from a range of different sources (wind, solar, nuclear, gas, hydro power, imports through cables from other countries, etc.).
It costs just £38 to generate one megawatt of electricity from onshore wind – but £114 to produce the same amount of electricity from gas!
However, the way our energy system is structured right now means the price of electricity is always set by the most expensive source of power used in the daily mix (this is called ‘marginal pricing’).
Guess what? Gas set the price of UK electricity 98% of the time in 2021, while the European average for was just 58%.
Why is this? Even on days when a huge amount of our electricity is coming from the wind or sun, we nearly always use some gas as a ‘top up’ – and this happens way more in the UK than the rest of Europe.
This is because, as an island, we have fewer interconnector cables to move energy back and forth with our neighbours and it costs more to get it here. Countries in mainland Europe can quite easily balance their grids by drawing in surplus electricity from other countries – instead of firing up gas plants to top up their needs.
Importing electricity to the UK from Europe has become even more difficult since Brexit, due to trade frictions, a weaker pound and the fact that we are no longer part of the EU Internal Energy Market.
Where does the gas we use come from?
We do have some of our own North Sea gas. However, most North Sea reserves are actually oil, not gas, so we import most of the gas we use. International gas prices have shot up since the Russian invasion of Ukraine and we are now buying in a lot of it from America, which has to be shipped here on tankers.
Will we always be stuck with expensive gas? The wind isn’t always blowing and the sun isn’t always shining after all….
It’s true that renewables are intermittent. However, as more renewables are connected to the national grid, our reliance on gas will become less and less of an issue. A day without wind in Cornwall will be offset by wind blowing in Scotland, for example, or lots of sun in Lincolnshire. Development of battery parks to store excess renewable energy will also make a big difference.
The good news is that we have the potential to produce vastly more renewable energy in the UK than we’re currently doing.
However, the big problem right now is that our 100-year-old electricity grid cannot cope with all the potential renewable energy we could generate.
Many renewable projects have to wait at least a decade before they can be connected – and many of the renewable generators already connected often have to be switched OFF to prevent the system becoming overloaded with too much power!
Successive governments have failed to make the necessary investment – and privatisation since the 1980s has made things worse.
Britain is the only country in Europe to have fully privatised energy, water and rail systems – and we also pay more for our energy, water and rail services.
Privatised companies tend to prioritise paying out dividends for their shareholders (as we’ve seen with the scandal around sewage dumping by our water companies) instead of investing in necessary infrastructure and upgrades. The price of bailing out private electricity companies that collapsed during the 2022 energy crisis has also been added to our bills (while the profits of the ‘big five’ have all risen).
Another very important reason why our bills are so high is because we use more electricity and gas in the first place than people in many other countries. UK homes are among the oldest and least energy-efficient in Europe. Poor insulation and heating systems mean people have to use more electricity (and gas) to achieve the same level of comfort.
OK, so if gas-fired power plants are making our electricity so expensive – why is UK household gas cheaper than the EU average?
This is because of an uneven playing field in the way electricity and gas bills are structured.
Around 11% of our UK electricity bills is made up of environmental and social levies, such as subsidies for those who can’t afford their bills, energy efficiency schemes and upgrading the national grid.
Right now, these charges are applied at a flat rate – regardless of whether you’re an 80-year-old in a tiny flat or a family of six with a heated swimming pool. There are calls for this now to be changed.
European countries charge just the same kinds of green/ social levies – but they often include them in the mix of general taxation instead of adding them onto people’s bills.
When it comes to household gas, the situation in the UK is totally reversed. There are green levies here too (renewable heat subsidies) – but instead of being directly passed on to gas customers’ bills, these ones are paid for out of our general taxation. This artificially skews domestic gas bills to be cheaper than electricity.
The UK also imposes lower VAT on domestic gas than many EU countries, which generally charge a higher rate on gas in efforts to discourage fossil fuel use.
This unhelpful pricing situation is hindering decarbonisation in the UK, by making electric vehicles and heat pumps more expensive than petrol, diesel and domestic gas.
It does not have to be this way!
The government has the power to overhaul this situation. For example, it could give Ofgem more teeth to limit the way in which suppliers like British Gas can currently influence energy policy.
The creation of Great British Energy (GBE), a publicly owned company aimed at investing in renewable energy sources like wind and solar power, is central to the Labour government’s energy plans.
The goal is to transition away from fossil fuels for electricity generation by 2030, which will mean tripling offshore wind capacity and doubling onshore wind and solar generation within five years, as well as upgrading the national grid to handle increased renewable energy inputs.
Achieving these aims on this timescale may be challenging but ultimately it needs to happen.
Quite aside from the urgent need to reduce greenhouse gas emissions, the short-sighted calls for us to abandon Net Zero will simply lock us into a high cost and highly vulnerable situation for longer.
Increasing global volatility, wars and tariffs are all making gas prices shoot up. But even without this instability, the era of cheap fossil fuels is over, as resources become harder and harder to extract.
Even if we were to exploit our remaining North Sea gas reserves, it’s very unlikely this gas would stay in theUK, because it would be extracted by private companies and sold for the best price on the international market (currently, for example, around 80% of the oil produced from the North Sea is exported – it does nothing for our energy security).
To sum up - the biggest cause of our high electricity bills is down to the price of gas and government choices about how to spread the costs of the energy transition – NOT because renewables are more expensive.
Investing in renewables, properly insulating our homes and upgrading our energy grid is going to take time – but it will give us an infinitely more secure future and definitely lower our bills.
As the birthplace of the Industrial Revolution, the UK has rightly been at the forefront of global efforts to tackle climate change. While there is much more to be done, it’s something we should all be proud of.
Scrapping Net Zero would take us in totally the wrong direction. It would also tell the rest of the world that we’ve given up on fighting for a better future for our children as the climate changes.
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Thank you to Tim Jones, CEO of Community Energy Plus for donating his time to co-edit this blog with Claire.
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