British electricity is among the most expensive in the developed world. Household energy costs are among the highest in Europe, higher than in all but three EU countries. Industrial energy costs, meanwhile, are well above the EU average and some three times those in the United States.
This is a blight on both living standards and the wider economy. At best, high energy costs force households to spend more on heating and power and less on everything else. At worst, they leave families in an anxious struggle to cover bills, or facing the grim choice between heating and eating.
For electricity-intensive industries like steel, glass, and chemicals, electricity is a core input, and sustained high prices erode margins and diminish international competitiveness. The Office for National Statistics (ONS) finds that energy-intensive manufacturing is down by one third since 2021 – when bills rocketed following the twin crises of COVID and Russia’s invasion of Ukraine. High costs also played a part in the collapse of UK Steel earlier this year.
We have not always compared so unfavourably to our friends abroad. British energy costs were broadly comparable to Europe until the 2010s, when relative electricity prices began to rise. The explosion in energy bills in the 2020s has accelerated a journey we were already on.
So why are we paying so much for electricity? And how can we replace scarcity and stagnation with abundance?
How Electricity Prices Are Set
In the UK, most households rely on gas for heating and hot water and electricity for power, while a smaller share (about 8 per cent) use electricity alone. The maximum price per unit is set by the regulator Ofgem, which updates the cap four times a year, with one rate for gas and another for electricity. For October–December 2025, for example, the cap is 26.35 pence per kWh of electricity.
The cap limits how much profit suppliers such as Octopus or OVO can make, but it does not reflect the wholesale price of electricity. In Great Britain, that price is set through day-ahead and intraday auctions run by market operators such as EPEX SPOT and Nord Pool – not by government. Power stations bid the minimum they are willing to accept to supply energy to the grid, but crucially all generators are then paid the price offered by the last and most expensive generator. Because gas is far costlier than wind, solar, or nuclear, the wholesale price is very often set by gas.
To illustrate, imagine electricity demand on a summer day is 1 GW. In the auction, wind and solar farms bid in at around £1 per MWh, while nuclear bids £5 per MWh. These technologies have low operating costs and therefore offer cheap power to ensure they are dispatched.
But their combined capacity is not enough to meet the full 1 GW demand. Gas-fired power stations are then needed to make up the difference, and because of their high fuel costs, they bid £90 per MWh. The auction clears at that point – and all generators, from the cheapest wind farm to the most expensive gas plant, are paid £90 per MWh.
So we can see that the UK’s electricity price is mostly determined by how expensive natural gas is on the global market – this is why bills surged so much when Europe had to wean itself off Russian gas. It also helps to explain why Britain – which relies on natural gas for around 40 per cent of electricity generation – saw a bigger increase than France, which relies mostly on nuclear.
The Ofgem price cap only provides some insulation to households against high energy costs. It smooths out the increases but cannot defy gravity: if wholesale prices rise, the cap will inevitably follow. Businesses, meanwhile, are not offered the same protections and so pay essentially the wholesale price for electricity.
This setup is one of the biggest reasons why prices are so high. If gas is being used to generate any electricity, then we pay the same price we would if gas were being used to generate all electricity – even if the majority is generated by cheaper, greener methods such as wind and nuclear. One of the best ways of cutting costs is to invest in those cheaper methods.
But this is far from the only reason we pay so much for our electricity. After all, wholesale gas prices have actually fallen slightly this year, but the Ofgem-capped rate for electricity is rising by 2 per cent this autumn.
A Grid That Is Not Fit For Purpose
The British grid was designed in a time when power stations were clustered near demand – large coal plants located not far from the big cities. But as we have phased out fossil fuels, we turned to cheaper but less flexible alternatives. The best place to build a wind farm is where the wind blows hardest – usually not where energy demand is greatest. The result is clusters of turbines in windy Scotland, far from the places with the highest need.
This would be manageable if Britain had a grid capable of moving power freely across the country. But decades of underinvestment and a sclerotic planning system have left regional links badly lacking. Each year bill-payers cover constraint costs approaching £1 billion, paying wind farms in Scotland and the North Sea to switch off on windy days, simply because the local grid cannot carry the load south to where demand is highest.
Instead of cheap renewable energy reaching homes and factories, the system falls back on gas plants in the south to plug the gap. And because Britain relies on a single national wholesale price, the cost of that gas sets the rate for all electricity – so the entire country pays the gas price even when renewables are abundant.
Heaping Policy Costs Onto Electricity
On top of wholesale and network costs, Britain has chosen to load a raft of environmental and social policy charges onto electricity bills rather than spread them fairly across all energy.
These include the costs of subsidising renewables and nuclear through Contracts for Difference, schemes to support vulnerable households such as the Warm Home Discount, and the legacy costs of early feed-in tariffs and renewables obligations. Altogether, they add well over £100 a year to a typical household’s power bill, while the equivalent charges on gas are minimal.
This imbalance makes electricity look artificially expensive compared to gas. It distorts consumer decisions: a heat pump or an electric boiler, even when efficient, looks far less attractive when every kilowatt-hour of power carries the weight of social and environmental levies, while gas remains undertaxed. For industry, it means firms pay more to electrify processes that could otherwise be more efficient and internationally competitive.
Other countries get this. Germany, after years of criticism about its high “Energiewende surcharge”, has shifted most renewables support costs off household electricity bills and into general taxation. France recovers a larger share of policy costs through broader fiscal measures rather than concentrating them on power bills.
The UK, by contrast, still relies heavily on piling costs onto electricity, even as it tells households and businesses that electrification is the route to a low-carbon future.
Towards Abundant Energy
Some argue that the solution to our predicament is to extract every last drop of fossil fuels from the North Sea – something Kemi Badenoch has pledged to do if the Tories win the next election. Along similar lines, Reform has pledged to scrap Net Zero and grant swathes of new oil and gas licences.
But one of the biggest reasons why electricity is so expensive in the UK is because we are too exposed to the price of gas. Increasing our reliance would hardly help. Besides, having a domestic supply does not make much difference when gas prices are set by the international market – not to mention the fact that there is not enough to meet domestic demand anyway.
So what should be done instead? The first and most obvious step is to cut the link between gas and electricity prices. One way would be to replace the single national wholesale price with zonal pricing – allowing electricity costs to vary across the country in line with local supply and demand. That would mean cheaper power near wind farms, for instance, and higher prices near gas plants.
Such a system would create stronger incentives. It would signal to businesses and investors where to locate demand – helping to spread growth and jobs to left-behind parts of the country. It would also reveal where new grid connections are most needed to bring costs down. At present, there is little incentive to fix the weak links between north and south, because everyone pays the same national price.
The Labour Government has flirted with zonal energy pricing but ultimately decided against it. Reporting suggests they were sympathetic to the idea, but my view is that they held back because they feared headlines about Scotland getting cheap power while London paid more. That is a poor reason not to reform a broken system, and they should think again.
Secondly, we need to clear the bottlenecks in grid capacity and make transmission upgrades an urgent national priority. Today, projects to reinforce the north–south spine of the grid take a decade or more, while constraint costs soar. Grid expansion should be treated as a national emergency, with approval delivered through acts of Parliament and an aggressively truncated consultation process.
At the same time, Britain must greatly expand clean generation. Onshore wind and utility-scale solar are typically the cheapest forms of new power, and offshore wind remains competitive but has faced cost pressures. The government should commit to a reliable pipeline of projects and reform auction rules so developers can build, and accelerate deployment now that the de facto ban on onshore wind has been lifted.
Nuclear, too, has to be part of the mix. Hinkley Point C and Sizewell C are only a start; if Britain is serious about energy security, we need a clear long-term nuclear programme that investors and supply chains can plan around. This, again, requires acts of Parliament and limits on the ability of local opposition to block nationally significant projects.
Finally, we should rebalance levies and policy costs away from electricity. The latter should not be carrying the entire weight of social and environmental costs when it is gas that we need to phase out. Moving these costs to general taxation or a broad carbon levy would make heat pumps, EVs, and electric industrial processes much more attractive, while still funding support for the vulnerable and the transition to green energy.
Taken together, this is a blueprint for a future where energy is cheap and abundant – one that attracts the energy-intensive industries of tomorrow, from green manufacturing to AI data centres. It is a future where no family has to worry about affording the basics of power, where tumble dryers and air conditioning are everyday appliances rather than luxuries, and where the green transition makes life easier, not harder.
Above all, it is a future that replaces the scarcity mentality dominating our national discourse with a newfound belief in abundance.
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