This week saw yet another hike in Britain’s electricity price cap—the latest in a string of hikes that have ranked the country among the top five with the most expensive electricity in the world. But there is a bigger problem: the country is the undisputed leader in industrial electricity prices in the world. And that may cost its government their energy transition plans.
On Wednesday, energy regulator Ofgem announced a 2% hike in household electricity prices, beginning in October. This will add an average of 35 pounds, or $47, to a household’s bill, bringing the total to the equivalent of over $2,300 per year. A lot of people in Britain are already struggling with their electricity bills, and now their number is likely to rise further, putting the government in quite a bind—because one big reason for the cap hikes is “extra financial support for those on benefits,” as the BBC reported.
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Yet there is also another reason for the cap hike: “costs involved in matching the supply of energy with demand, which includes switching generators such as windfarms on and off.” In other words, electricity prices in the country are soaring because of the so-called curtailment, or the need to turn off wind turbines or solar installations when there is too much supply and not enough demand. Wind turbine operators in Britain get paid for this, and they get paid handsomely.
In the 2024/25 financial year, Britain’s National Energy System Operator had to pay a total of 2.7 billion pounds, or some $3.7 billion, in balancing costs, which include the abovementioned payments to wind generators and the costs of starting up baseload generation when there is no or low wind generation. “Wind curtailment is currently a major driver of balancing costs,” NESO said in the report, adding that “This is because a large proportion of wind capacity in GB is connected in Scotland, which at present is a constrained region of the network.”
This particular bill is entirely the result of government efforts to replace baseload generation from hydrocarbons with what it calls renewable energy from wind and solar installations. Most of Britain’s renewable capacity is in the form of wind turbines. However, a problem has emerged with wind farms, compromising their reputation as renewable: an effect called wind theft affects output from wind parks. In short, the more turbines there are in a certain location, the less they produce because they “steal” each other’s wind.
These exorbitant electricity costs are a pretty big problem for households, but it is an even bigger problem for industrial users and, as an ironic consequence, for the energy transition ambitions of Britain’s government. The reason: the higher the cost of electricity, the less money industrial electricity consumers have to spend on shifting towards net zero.
Reuters published an overview of the problem this week, citing business owners and analysts as saying that electricity costs have turned into a major obstacle for Britain’s net-zero plans, which involve a massive increase in existing wind and solar generation capacity, the electrification of transport, and a lot of battery storage. Building all this, however, would require a lot of government funding, which now has to go to industrial electricity consumers struggling with their costs, which can come in at four times as much as what users in continental Europe are paying, according to the International Energy Agency. Indeed, industrial electricity consumers in Britain had to pay an additional 29 billion pounds over the last four years in electricity bills because of cost inflation. That’s equal to some $39 billion or around $9.75 billion annually between 2021 and 2024.
A lot of money is also going into the contracts-for-difference scheme that the government launched for wind and solar tenders in order to encourage more capacity. The CfD scheme essentially guarantees wind and solar generators a certain minimum price for their electricity, in addition to the curtailment payments. The more wind and solar get built, the higher this particular bill will go.
It seems, then, that Britain’s net-zero journey is costing it a lot. This cost could derail the train of that journey, because cost-cutting options are rather limited. They are, in fact, so limited that the only way the Starmer government has come up with to solve the problem of industrial electricity users is more state support, which comes from taxpayers, boosting their bills.
The bind is quite serious. In fact, an argument can be made that Britain’s net-zero efforts have been instrumental in its inadvertent deindustrialization and the surge in energy poverty. Yet, perhaps worst for the current government is the fact that net zero has been bad for net zero, paradoxical as it may sound. Essentially, the more money the government spends on wind and solar subsidies and other forms of aid, the less money it has to spend on other transition-related investments that are presumed essential for the success of its decarbonization plan. That’s one tough circle to square.
