ENB Pub Note: This article was written by Kathryn Porter for The Telegraph, and we will be covering this on the Energy Realities Podcast on Monday. Stu Turley will also be reaching out to Kathryn to have her on the Energy News Beat Podcast later. The UK has the highest electricity prices in the West for a reason, and it is not due to good management or decisions.
This week, Centrica boss Chris O’Shea warned that electricity bills in 2030 could be higher than during the gas crisis caused by Vladimir Putin’s invasion of Ukraine, causing predictable alarm. The surprise was not just the headline, but his explanation: this was not about gas prices, it was about network costs.
For years, we have been told that gas prices drive electricity bills. Russia’s invasion of Ukraine in February 2022 did indeed send gas prices ballistic, dragging electricity prices with them.
But prices have since retreated. UK wholesale gas is now below its level before the invasion and continues to trend towards long-term pre-Covid norms as global liquefied natural gas supply expands, replacing supplies piped from Russia. The idea that gas is the permanent driver of bills no longer stacks up.
This shift was acknowledged in evidence given by energy executives to a Parliamentary Select Committee late last year. Several agreed that policy and network costs, not gas prices, are the dominant components of bills. One stated bluntly that even if wholesale prices were zero, household bills would still be substantial because of network and policy charges.
Gas does influence wholesale electricity prices, along with carbon costs. But wholesale electricity cost typically accounts for less than 40 per cent of a domestic bill. It’s therefore simply inaccurate to claim that gas drives bills.
So what is going to push bills ever upward over the next few years?
Electricity bills cover the cost to suppliers of buying power in wholesale markets and delivering it to homes and businesses. They include customer service and billing costs, modest regulated profits, and 5 per cent VAT. They also include renewable subsidies and the cost of providing backup generation.
Connecting renewables is more costly than ‘non-load’ spending
Most significantly, they include network costs. These are not limited to pylons and substations. Network costs encompass maintaining existing grids, building new infrastructure to connect generation, balancing supply and demand in real time and compensating generators when output has to be curtailed because the system cannot accommodate it.
Much of the public debate has focused on investment under Ofgem’s next price control. Ministers present this as modernising an ageing grid, but the bulk of capital spending is “load-related”: that is, investment to connect new generation, almost all of it renewables, and batteries. “Non-load” spending, which covers refurbishing the existing grid, is much smaller.
Renewables have low energy density. A wind farm requires vastly more physical space than a gas power station producing equivalent energy over time. And they are often located away from existing infrastructure, which means more cables, more substations, longer transmission routes and more costs which are added directly into bills.
The expense does not stop at the hardware. Running a grid with a lot of intermittent renewable generation requires constant intervention to ensure supply and demand remain in balance. Electricity systems must be balanced in real time to avoid damaging equipment and risking blackouts.
We also see increases in constraint costs – when more generation is trying to access the grid than the grid can carry, generators are instructed to reduce output and are compensated for lost revenue. Constraint costs have risen dramatically from around £0.5bn in 2018-19 to approximately £1.9bn in 2024-25. The National Energy System Operator forecasts constraint costs in 2030 of between £2.8bn and £3.7bn.
The more aggressively Britain pursues a renewables-heavy 2030 target, the more it risks paying generators not to generate. Consumers fund both sides of this equation: the capital cost of building renewables and the cost of compensating them when they cannot run.
This is the backdrop to Mr O’Shea’s warning. By 2030, wholesale gas will represent an even smaller share of bills. Even if gas prices continue trending down, the structural costs of operating and expanding the increasingly renewables-powered grid will go nowhere but up.
It is misleading to present rising network spending as benign modernisation. Much of the increase reflects deliberate policy choices to reshape Britain’s generation: most obviously, energy minister Ed Miliband’s stubborn determination to almost completely decarbonise the UK’s electricity by 2030. Rising balancing and curtailment costs are the operational consequences of those choices. Planned electrification of transport and heating will only make this worse.
The political implications are stark. Labour has promised to cut bills by £300 by 2030, arguing that renewables will structurally lower costs because wind and solar have no fuel expense. But while wind and sunlight are free, the machines that capture them are not. Nor is the vast infrastructure required to integrate them reliably into a nationwide grid. That is the real warning behind Mr O’Shea’s remarks, and it’s one ministers cannot dismiss by blaming gas prices.
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