The UK has been particularly exposed, as gas sets its wholesale power prices 98% of the time \u2013 and gas remains three times more expensive than before the crisis.<\/p>\n
Nevertheless, some have\u00a0sought instead<\/a>\u00a0to misleadingly blame the UK\u2019s high power electricity on \u201cgreen levies\u201d that support the expansion of\u00a0clean power<\/a>, as well as the target for\u00a0net-zero emissions<\/a>\u00a0by 2050.<\/p>\n While the UK is making significant investments in new clean-power capacity and in upgrading its electricity grid, \u201cgreen levies\u201d and network charges account for just 6% and 20% of the rise in bills since before the energy crisis, respectively, against 53% due to wholesale prices driven by gas.<\/p>\n Moreover, part of the rise in network charges is also down to gas, resulting from utility firms going\u00a0out of business<\/a>\u00a0during the energy crisis, as well as high\u00a0gas-related<\/a>\u00a0costs for managing the electricity grid.<\/p>\n Dhara Vyas<\/a>, chief executive of industry body\u00a0Energy UK<\/a>\u00a0tells Carbon Brief that it is<\/p>\n \u201ccrystal clear what has driven electricity bills up in the UK\u2026it\u2019s the wholesale costs, driven by the price of gas\u201d.<\/p><\/blockquote>\n This article looks at how electricity prices could be reduced in the short- to medium term and why the transition to clean power is, ultimately, expected to result in lower energy bills overall.<\/p>\n (This article refers to the UK throughout, but strictly relates to the island of Great Britain made up of England, Scotland and Wales. Northern Ireland is part of the separate all-Ireland electricity system.)<\/p>\n In the months before Russia\u2019s invasion of Ukraine in early 2022, global gas prices had already started to rise as the global economy\u00a0bounced back<\/a>\u00a0from the\u00a0Covid pandemic<\/a>\u00a0and Russian president Vladimir Putin\u00a0began restricting<\/a>\u00a0energy supplies to Europe.<\/p>\n In the wake of its\u00a0invasion of Ukraine<\/a>\u00a0in February 2022, Russia then\u00a0cut off<\/a>\u00a0the bulk of gas deliveries to Europe, having previously been the continent\u2019s\u00a0biggest source<\/a>\u00a0of the fuel.<\/p>\n Gas prices\u00a0rocketed<\/a>\u00a0\u2013\u00a0and so did the UK\u2019s\u00a0energy bills<\/a>. Millions of households were left in\u00a0fuel poverty<\/a>, despite the government\u00a0spending \u00a3100bn<\/a>\u00a0on\u00a0support<\/a>\u00a0to\u00a0alleviate<\/a>\u00a0the pressure.<\/p>\n While gas prices have subsided from their historic highs in 2022, as of May 2025, they remain\u00a0three times<\/a>\u00a0higher than they were before the global energy crisis.<\/p>\n As such, despite all of the\u00a0media<\/a>\u00a0commentary<\/a>\u00a0and\u00a0politicians\u2019<\/a>\u00a0speeches<\/a>\u00a0arguing the contrary, the UK\u2019s exposure to high gas prices is still, by far, the biggest reason for the country\u2019s high electricity prices.<\/p>\n (In 2022,\u00a0International Energy Agency<\/a>\u00a0(IEA) chief\u00a0Dr Fatih Birol<\/a>\u00a0wrote in the\u00a0Financial Times<\/a>\u00a0that it was \u201cabsurd\u201d to blame high prices on clean energy. He added:<\/p>\n \u201cWhen people misleadingly blame clean energy and climate policies for today\u2019s energy crisis they are, intentionally or not, moving the spotlight away from the real culprits \u2013 the gas supply crunch and Russia.\u201d)<\/p><\/blockquote>\n The figure below shows the\u00a0price cap<\/a>\u00a0for household electricity bills set by energy regulator\u00a0Ofgem<\/a>, breaking down the different elements of average household costs over the past decade.<\/p>\n The\u00a0biggest driver<\/a>\u00a0of recent increases\u00a0in electricity bills is the wholesale price of electricity, which is set in the UK almost exclusively by wholesale gas prices (see below).<\/p>\n Consequently, the spike in electricity bills shown by the dark blue area in the figure below is a reflection of the spike in gas prices following Russia\u2019s invasion of Ukraine in 2022.<\/p>\n In contrast, \u201cgreen levies<\/a>\u201d \u2013\u00a0costs added to bills in order to pay for government climate policies\u00a0\u2013\u00a0actually fell during the height of the gas price spike, as the dark grey area of the chart shows. They are currently only marginally above pre-crisis levels.<\/p>\n Ofgem price cap for domestic electricity bills at typical consumption levels, \u00a3 per household per year, broken down by source of charges. Source: Carbon Brief analysis of Ofgem.<\/em><\/p>\n In recognition of these basic facts, the UK\u2019s prime minister Keir Starmer has\u00a0reiterated<\/a>\u00a0the link between high energy bills and the country\u2019s exposure to fossil-fuel prices.<\/p>\n The UK\u2019s households and businesses have \u201cpaid the price\u201d for \u201cour over-exposure\u201d to fossil fuels, he\u00a0told<\/a>\u00a0an\u00a0energy security summit<\/a>\u00a0in London at the end of April 2025, attended by Carbon Brief and jointly hosted by the UK government and the\u00a0IEA<\/a>.<\/p>\n Starmer\u00a0told the summit<\/a>\u00a0that half the UK\u2019s recessions since the 1970s had been caused by \u201cfossil-fuel shocks\u201d and that his government was \u201cdetermined\u201d to get the country off the \u201croller-coaster of international fossil-fuel markets\u201d by shifting to clean energy:<\/p>\n \u201cWhen it comes to energy, we\u2019re also paying the price for our over-exposure, over many years, to the roller-coaster of international fossil-fuel markets, leaving the economy and therefore peoples\u2019 household budgets vulnerable to the whims of dictators like [Russian president Vladimir] Putin, to price hikes, and to volatility that is beyond our control.\u201d<\/p><\/blockquote>\n Under the\u00a0latest price cap<\/a>\u00a0from Ofgem, the average household now faces an electricity bill of \u00a3926 per year, up from \u00a3603 before the energy crisis\u00a0\u2013 a rise of 54%.<\/p>\n Two-fifths of the current cap is made up of wholesale costs (38%), one-fifth from network charges (22%), plus another one-fifth from green levies (15%) and social policies (4%). The final fifth of the bill is made up of operating costs (14%), profits (2%) and other items.<\/p>\n The biggest change in these costs has come from the spike in wholesale energy costs.<\/p>\n Other elements of household electricity bills have also gone up over the past decade, including network charges and levies. (See:\u00a0What has driven the rise in UK household electricity bills?<\/a>)<\/p>\n However, the gradual rises in these other costs have been overwhelmed in recent years by the huge spike in wholesale power prices driven by expensive gas.<\/p>\n One common objection to these facts is that gas prices have been\u00a0equally eye-watering<\/a>\u00a0in other European countries, but their electricity prices have not been quite so affected as the UK\u2019s.<\/p>\n Whereas the UK once had middling power prices\u00a0relative<\/a>\u00a0to other European countries, it has risen up the ranks to post some of the continent\u2019s\u00a0costliest electricity<\/a>\u00a0per unit.<\/p>\n (Figures comparing electricity prices in European\u00a0capital cities<\/a>\u00a0in April 2025 put the UK fourth, whereas France is close to the continental average.)<\/p>\n The biggest reason for this rise in the UK\u2019s relative prices is the fact that its power system is far more exposed to gas-fired generation than other countries.<\/p>\n Specifically, gas sets the wholesale price of electricity in the UK 98% of the time, according to\u00a0academic research<\/a>\u00a0published in 2023. This is far more often than in other European countries, including France (7%) or Germany (24%), as shown in the figure below.<\/p>\n Share of hours where gas sets the wholesale price of electricity in selected European countries, %. Source:\u00a0Zakeri and Staffell 2023<\/a><\/em>.<\/p>\n The UK\u2019s electricity market\u00a0operates<\/a>\u00a0using a system known as \u201cmarginal pricing<\/a>\u201d. This means that all of the power plants running in each half-hour period are paid the same price, set by the final\u00a0generator that has to switch on to meet demand, which is known as the \u201cmarginal\u201d unit.<\/p>\n While this is unfamiliar to many people, marginal pricing is far from unique to the UK\u2019s electricity market. It is used in most electricity markets\u00a0in Europe and around the world, as well as being\u00a0widely used<\/a>\u00a0in commodity markets in general.<\/p>\n Still, the UK\u2019s current electricity mix means that gas is almost always the marginal fuel, even though it only accounts for a\u00a0third of generation<\/a>\u00a0overall.<\/p>\n (In contrast, the\u00a0marginal fuel<\/a>\u00a0in many other European countries is hydro. In France, it tends to be nuclear, while in Germany it is split between coal, gas and hydro.)<\/p>\n The result is that the UK\u2019s wholesale electricity prices track wholesale gas prices almost perfectly, as shown in the figure below.<\/p>\n Monthly average day ahead prices for wholesale gas (pence per therm) and electricity (\u00a3 per megawatt hour) in the UK. Source: Ofgem.<\/em><\/p>\n In summary, the UK electricity system is far more heavily exposed to gas prices than those of other European countries and, consequently, its power prices have been hit harder by the energy crisis.<\/p>\n Prof Rob Gross<\/a>, director of the\u00a0UK Energy Research Centre<\/a>\u00a0(UKERC), tells Carbon Brief:<\/p>\n \u201cI think the bottom line on it all is that we are particularly exposed to gas prices\u2026That\u2019s the principal driver of our [electricity] prices.\u201d<\/p><\/blockquote>\n Energy UK chief Vyas said in a recent\u00a0statement<\/a>\u00a0that \u201cit\u2019s the volatile cost of fossil fuels and our dependence on them that have driven up energy bills for customers\u201d.<\/p>\n In comments to Carbon Brief for this article, Vyas expands on the point, explaining how the UK\u2019s exposure to imported fossil fuels has left it worse off than its neighbours:<\/p>\n \u201cOur electricity prices are high largely because our energy system depends on imported gas \u2013 and because of the extent to which that gas sets the price for electricity. This is what has driven UK bills to record levels in recent years \u2013 and why, despite falling from that peak, they remain high compared to three years ago. It\u2019s also largely why our energy costs are higher than our European counterparts.\u201d<\/p><\/blockquote>\n Since 2021, the household\u00a0electricity price cap<\/a>\u00a0set by regulator Ofgem has risen from \u00a3603 per year for average households to \u00a3926 per year \u2013 an increase of \u00a3324, or 54%.<\/p>\n Some \u00a3162 of the increase is due to wholesale costs, which have roughly doubled over the period.<\/p>\n Put another way, the UK has\u00a0spent \u00a3140bn<\/a>\u00a0on buying gas since the start of the global energy crisis, according to the\u00a0Energy and Climate Intelligence Unit<\/a>\u00a0(ECIU).<\/p>\n Vyas tells Carbon Brief:<\/p>\n \u201cIt\u2019s crystal clear what has driven bills up in the UK. If you look at any data about our energy bills over the last 5 years \u2013 every single time it\u2019s the wholesale costs, driven by the price of gas, that pushes bills up or down. The policy costs on bills (sometimes referred to as green levies) hardly shift.\u201d<\/p><\/blockquote>\n Underneath the large spike in wholesale power costs due to the \u201croller coaster<\/a>\u201d of international gas markets, there have also been steady increases in policy and network charges in recent years. This includes the \u201cgreen levies\u201d that support the expansion of the UK\u2019s clean energy supplies.<\/p>\n Specifically, some \u00a363 has been added to bills since 2021 as a result of rising network charges, another \u00a318 from \u201cgreen levies\u201d and \u00a365 from other sources.<\/p>\n (Notably, as explained below, part of the rise in network charges is also due to high gas prices.)<\/p>\n This means that network charges and \u201cgreen levies\u201d account for 20% and 6% of the rise since pre-crisis levels, respectively, compared with 54% due to higher wholesale prices.<\/p>\n These contributions to the increase in electricity bills since 2021 are shown in the figure below.<\/p>\n Changes in domestic electricity price cap components between summer 2021 and the second quarter of 2025, \u00a3. Source: Carbon Brief analysis of Ofgem data.<\/em><\/p>\n As explained above, the driver of higher wholesale electricity costs is high gas prices, with the fuel remaining\u00a0three times more expensive<\/a>\u00a0than before the global energy crisis.<\/p>\n In contrast, \u201cgreen levies\u201d have gone from \u00a3118 per year in summer 2021 to \u00a3137 today. As bills rose dramatically in this period, the share due to green levies has dropped from 20% to just 15%.<\/p>\n The small rise in green levies is due to a \u00a322\u00a0inflationary increase<\/a>\u00a0in the cost of the \u201crenewables obligation<\/a>\u201d (RO) scheme, which closed to new projects\u00a0in 2017<\/a>. The RO currently adds \u00a389 per year to average household electricity bills, some 10% of the total.<\/p>\n Ironically, this means that the cost of renewable support has risen, at least in part, because of high gas prices, which have contributed to\u00a0higher-than-expected<\/a>\u00a0inflationary pressures.<\/p>\n The RO still\u00a0supports<\/a>\u00a0around 30% of UK electricity supplies, but the first tranche of 15-year contracts will come to an end from 2027, meaning the cost will fall over time.<\/p>\n In 2023, the then-Conservative government\u00a0sought views<\/a>\u00a0on changing the measure of inflation used to calculate the RO each year from the \u201ctechnically deficient<\/a>\u201d index known as \u201cRPI\u201d, to the lower \u201cCPI\u201d. However, this shift was not pursued.<\/p>\n The cost of renewables that hold newer \u201ccontracts for difference<\/a>\u201d (CfDs) has actually fallen by \u00a35 per household per year\u00a0since before the energy crisis \u2013 from \u00a332 to \u00a327\u00a0\u2013 despite supporting\u00a0more capacity<\/a>\u00a0than four years ago.<\/p>\n This is because CfDs offer a fixed price for each unit of electricity generated. As wholesale prices have climbed, the top-up needed to meet this fixed price has fallen. CfDs currently account for less than 3% of average electricity bills, down from 5% before the crisis.<\/p>\n In total, the RO and CfDs currently add\u00a0around \u00a310bn<\/a>\u00a0a year to end-user electricity bills, of which households account for around a third. This amounts to \u00a3116 per household per year.<\/p>\n The\u00a0Office for Budget Responsibility<\/a>\u00a0(OBR)\u00a0forecasts<\/a>\u00a0that the combined cost of the RO and CfDs will rise by 3% between now and the end of the decade, from \u00a39.6bn to \u00a39.9bn.<\/p>\n Current electricity bills also include \u00a320 to pay for \u201cfeed-in tariffs<\/a>\u201d (FiTs), which were offered to small-scale renewable schemes\u00a0until 2019<\/a>. This is up by \u00a32 per year since before the crisis.<\/p>\n FiTs also rise with inflation, but, as with the RO, the scheme is closed to new projects. This means costs will fall over time as the oldest installations see their contracts coming to an end.<\/p>\n The cost of government social policies adds another \u00a336 to average electricity bills, up \u00a318 since summer 2021 due to\u00a0higher spending<\/a>\u00a0on insulating the homes of families on low incomes.<\/p>\n This type of spending had been falling until 2019, after the then-Conservative government tried to lower energy bills from 2013 by \u201ccutting the green crap<\/a>\u201d. Although these efforts reduced bills in the short term, they ended up adding \u00a322bn to bills in the long term, previous\u00a0Carbon Brief<\/a>\u00a0analysis found, because they left homes more exposed to the spike in gas prices during the energy crisis.<\/p>\n Vyas tells Carbon Brief:<\/p>\n \u201cFor well over a decade, investors have been telling us they want to see ambition and certainty from government. Taking a \u2018boom and bust\u2019 approach, where policy and direction of travel keep changing, adds costs to everyone\u2019s bills. For example, the infamous move to \u2018cut the green crap\u2019 cost customers in this country billions of pounds, as Carbon Brief has demonstrated.\u201d<\/p><\/blockquote>\n Alongside wholesale prices, network charges have also seen significant increases since before the global energy crisis, as noted above. These charges have risen by \u00a363 from \u00a3136 a year in summer 2021 to \u00a3198 today, up by nearly 50%.<\/p>\n The figure below breaks down the \u00a3200 cost of network charges per household per year.<\/p>\n Some \u00a3115 of this\u00a0\u2013 13% of bills\u00a0\u2013 is earmarked for \u201cdistribution<\/a>\u201d networks, which deliver electricity to households and businesses at lower voltages. This segment has seen the largest increase of all network charges, adding \u00a325 per year.<\/p>\n Next is the national \u201ctransmission\u201d network, at \u00a351, which moves electricity around the country on towering pylons carrying high-voltage lines\u00a0\u2013 sometimes referred to as the \u201cmotorways of the grid<\/a>\u201d. While these costs have risen by more than half since 2021, this still only added an extra \u00a318 to bills each year.<\/p>\n The third component is grid balancing, which reflects the costs of making sure that supply and demand are perfectly matched at all times. This has soared from \u00a312 a year in 2021 to \u00a332 today.<\/p>\n Network cost contributions to the Ofgem price cap for domestic electricity bills at typical consumption levels, \u00a3 per household per year. Source: Carbon Brief analysis of Ofgem.<\/em><\/p>\n Many<\/a>\u00a0articles<\/a>\u00a0on the UK\u2019s high electricity bills have said that rising network charges are due to the cost of managing and expanding the grid to cope with new, variable wind and solar generation.<\/p>\n While\u00a0major investments<\/a>\u00a0are being made in the grid, the rise in network charges is not all it seems. Indeed, parts of these increases are also due to high gas prices.<\/p>\n For example, the cost of bailing out the\u00a0dozens<\/a>\u00a0of electricity retailers that went out of business during the energy crisis\u00a0\u2013 ultimately, as a result of high gas prices\u00a0\u2013\u00a0is being paid for by households and is included within distribution network charges under the Ofgem price cap.<\/p>\n The amounts being added to bills to pay for these bailouts, within each of the price-cap periods shown in the figure above, is not routinely disclosed by Ofgem.<\/p>\n However, in 2022, Ofgem\u00a0said that \u00a366<\/a>\u00a0was being added to household bills to pay for these failures under a scheme known as the \u201csupplier of last resort\u201d (SoLR). This aligns with the first hump in the figure above \u2013\u00a0and the second hump likely relates to further\u00a0SoLR costs<\/a>.<\/p>\n For grid\u00a0balancing costs<\/a>, there is a similar story, because high gas prices make it more expensive to manage the electricity system.<\/p>\n National Grid Electricity System Operator<\/a>\u00a0(NESO) sometimes pays gas power plants to switch on\u00a0\u2013\u00a0and these \u201credispatch\u201d instructions are more expensive as a result of high gas prices.<\/p>\n NESO\u00a0explains<\/a>\u00a0that balancing costs are \u201cstrongly in correlation to the wholesale spot electricity markets and [therefore] dependent on the natural gas market\u201d.<\/p>\n A gas-related bump in balancing costs is clearly evident in the figure above.<\/p>\n There have been two other important drivers of rising balancing costs. First, an increase in the number of balancing actions that NESO needs to take, mainly relating to \u201cconstraints<\/a>\u201d on the network that result in wind projects being paid to switch off \u2013 known as\u00a0curtailment<\/a>.<\/p>\n Constraint costs have risen because grid capacity has not kept pace with the number of new wind power projects being built, particularly in Scotland.<\/p>\n A series of\u00a0new grid<\/a>\u00a0connections are being built between Scotland and England, which will add to transmission charges while cutting balancing costs.<\/p>\n The second additional factor for balancing charges is that,\u00a0since 2023<\/a>, consumers have paid for 100% of these costs, whereas they were previously shared equally with electricity generators.<\/p>\n Despite their rapid recent rise, balancing charges still only add \u00a332 a year to average household electricity bills, including the\u00a0much<\/a>\u2013publicised<\/a>\u00a0cost<\/a>\u00a0of wind constraint payments.<\/p>\n One analyst tells Carbon Brief:<\/p>\n \u201cI know people make a great fuss about constraint payments\u2026it sounds like a big number. It\u2019s actually not, in terms of its impact on bills.\u201d<\/p><\/blockquote>\n A final important factor in rising network charges is that the UK\u2019s electricity networks are ageing and require significant ongoing investment in order to replace old equipment before it fails.<\/p>\n (For example, the substation fire that\u00a0closed<\/a>\u00a0Heathrow airport earlier this year started in a transformer that had been\u00a0commissioned in 1968<\/a>, making it 57 years old.)<\/p>\n Moreover, grid operators have been allowed to increase their investments in recent years, partly in order to make up for previous periods of what a select committee\u00a0report<\/a>\u00a0called \u201cunder-investment\u201d.<\/p>\n The 2003 report, on the resilience of the electricity network, said that customers at the time had been \u201cliving off the investment made by [their] predecessors\u201d and that there was \u201cinsufficient investment\u201d to replace old equipment \u201cin a planned and orderly way\u201d.<\/p>\n Similarly, a 2009 Ofgem\u00a0report<\/a>\u00a0on energy network price controls found that distribution network operators \u201cmay not have been carrying out the investment required to maintain\u201d the grid.<\/p>\n Gross tells Carbon Brief:<\/p>\n \u201cMy suspicion is that the investment to facilitate renewables being connected to the grid is a pretty small fraction of that increase [in network charges]\u2026I think [a lot of it is] the legacy of maybe\u2026squeezing and minimising expenditures in the immediate\u00a0post-privatisation<\/a>\u00a0period.\u201d<\/p><\/blockquote>\n To be clear, it remains the case that major investments are being made in expanding the grid\u00a0\u2013 and that these investments will, ultimately, be paid for via consumer electricity bills.<\/p>\n Yet, to take one example, expanding the distribution network to\u00a0support<\/a>\u00a0the electrification of heat and transport will add just \u00a35-10 to annual household bills by 2030 and \u00a320-25 by 2050, according to a February 2025\u00a0report<\/a>\u00a0from the\u00a0National Infrastructure Commission<\/a>\u00a0(NIC), now part of the\u00a0National Infrastructure and Service Transformation Authority<\/a>.<\/p>\n The relatively low annual cost increase to households is despite these investments totalling as much as \u00a350bn, according to NIC. (This is a good illustration of the way that \u201cscary-sounding numbers<\/a>\u201d can be used to mislead people about the \u201ccost\u201d of the transition to net-zero.)<\/p>\n Moreover, NIC expects household energy bills\u00a0to\u00a0drop significantly<\/a>\u00a0overall by 2035, even as electricity network charges rise. (It sees the average dual-fuel bill for electricity and gas falling from just shy of \u00a32,000 a year in 2019 to around \u00a31,300 by 2035 and to less than \u00a31,200 by 2050.)<\/p>\n In broader terms, rising levies and network charges illustrate the changing nature of electricity bills\u00a0\u2013 and energy bills more broadly\u00a0\u2013\u00a0as the UK shifts towards net-zero.<\/p>\n Historically, fuel costs have accounted for the bulk of energy bills, including not only household gas and electricity, but also the cost of motoring.<\/p>\n In a net-zero future, fuel costs would be\u00a0massively reduced<\/a>, as gas for heat and power, as well as petrol in cars, are progressively replaced with more efficient\u00a0electrified<\/a>\u00a0alternatives<\/a>.<\/p>\n Notably, this means that part of the cost of upgrading, decarbonising and expanding the UK\u2019s electricity system would translate into major savings in the cost of UK transport.<\/p>\n This transition carries upfront capital costs to build new clean power sources, as well as the infrastructure needed to connect them to consumers and to manage their variable output.<\/p>\n However, the cost of these upfront investments will be spread over many years. Moreover, they are ultimately expected to pay dividends via lower operating costs (See:\u00a0What will the UK\u2019s climate goals mean for bills in the future?<\/a>)<\/p>\n The UK\u2019s industrial electricity prices have also been a prominent fixture in the debate over why energy costs have become so high, particularly following the\u00a0latest crisis<\/a>\u00a0in steelmaking.<\/p>\n In November 2024, the Financial Times had\u00a0published<\/a>\u00a0a chart showing that industrial electricity prices in the UK in 2023 were far higher than in any other country listed.<\/p>\n The idea that the UK\u2019s industrial power prices are among the \u201chighest in the world<\/a>\u201d has now become firmly embedded in the\u00a0political discourse<\/a>.<\/p>\n Yet this discourse\u00a0frequently ignores<\/a>\u00a0the dominant role of gas in driving high prices.<\/p>\n In her March 2025 speech abandoning Conservative support for the UK\u2019s net-zero by 2050 target, opposition leader Kemi Badenoch\u00a0misleadingly<\/a>\u00a0blamed high power prices on climate policies in general and \u201cenvironmental levies\u201d in particular.<\/p>\n The debate around industrial power prices was supercharged at the end of March with the\u00a0news<\/a>\u00a0that the owner of the Scunthorpe steelworks, British Steel, planned to shut it down.<\/p>\n After the closure was averted by a\u00a0government takeover<\/a>, an April editorial in the\u00a0Daily Telegraph<\/a>\u00a0illustrated the tenor of much of the commentary in right-leaning, climate-sceptic newspapers by confidently blaming the crisis\u00a0on \u201csky-high energy costs imposed by successive governments in the name of net-zero\u201d.<\/p>\n Like so many others debating the UK\u2019s high industrial electricity prices, the editorial failed to even mention the word \u201cgas\u201d, let alone acknowledge its role in driving up costs.<\/p>\n In reality, the UK steel industry is completely exempt from \u201cenvironmental levies\u201d and\u00a0\u2013\u00a0under the government\u2019s \u201csupercharger<\/a>\u201d scheme\u00a0\u2013 it also gets relief from the majority of network costs.<\/p>\n While the UK steel industry still faces higher electricity prices than its counterparts in the likes of France or Germany, this is almost entirely down to expensive gas driving up UK wholesale prices.<\/p>\n Indeed, as\u00a0UK Steel<\/a>\u00a0explained in a\u00a0recent report<\/a>, environmental levies have a smaller impact on steel industry electricity bills in the UK than in neighbouring countries.<\/p>\n \u201cNet-zero, in itself, is not the cause of the decline in the steel industry. There are much more important factors, such as\u00a0global overcapacity<\/a>, [as well as] inflexible and unambitious trade policies.\u201d<\/p><\/blockquote>\n While Aaskov identifies high industrial electricity prices as a \u201ckey factor\u201d for the sector, he says that \u201ctoday, it\u2019s not net-zero policies\u201d that are causing those prices to be high. He says:<\/p>\n \u201cToday, [net-zero policies] are not the driver of high industrial electricity prices in the UK. It is higher network charges \u2013\u00a0because we have lower exemptions than there are in Germany and France\u00a0\u2013 and it\u2019s the cost of natural gas, which is driving the higher wholesale price.\u201d<\/p><\/blockquote>\n Aaskov says attempts to blame net-zero are \u201cunhelpful to the steel industry, especially because we as a sector have committed to decarbonising, our members are making huge investments in reducing emissions and\u00a0Port Talbot<\/a>\u00a0is the key example of that\u201d.<\/p>\n Ever since the start of the\u00a0global energy crisis<\/a>\u00a0in 2022, debate has been raging over how to get\u00a0spiralling energy bills<\/a>\u00a0under control.<\/p>\n The spike in gas prices put the spotlight on its role in setting wholesale power prices via\u00a0marginal pricing<\/a>, leading some people to call for electricity market reform.<\/p>\n In\u00a0April 2022<\/a>, the then-Conservative government launched a \u201creview of electricity market arrangements<\/a>\u201d, known by its acronym REMA. It ran the first consultation in July that year.<\/p>\n Although the review was much broader in scope, it was presented as a way to tackle high electricity prices and \u2013 potentially\u00a0\u2013\u00a0to decouple them from the high price of gas.<\/p>\n In the foreword of the first\u00a0REMA consultation<\/a>, then-energy secretary\u00a0Kwasi Kwarteng<\/a>\u00a0said that the electricity markets will be the \u201cbackbone\u201d of the future electricity system, so it is \u201ccritical\u201d to get the design right. He added:<\/p>\n \u201cThe last major programme of electricity market reform was 10 years ago and left some key parts of our market structure unchanged from the time when fossil fuels were the dominant source of energy; it is time to look again at whether they are fit for purpose, or whether reform is needed to deliver a clean, secure and low-cost energy system for consumers.\u201d<\/p><\/blockquote>\n The consultation explained that, while the use of marginal pricing left UK wholesale power prices \u201cclosely track[ing] gas prices\u201d, the impact of this would \u201cnaturally diminish over time\u201d as the share of generation coming from gas declined and that of clean power increased.<\/p>\n Still, it set out a number of options for explicitly breaking the link between wholesale power prices and the price of gas, such as a market that was \u201csplit by characteristic<\/a>\u201d, or that offered generators a price reflecting their own costs, rather than that of the marginal unit (\u201cpay-as-bid<\/a>\u201d).<\/p>\n A\u00a0summary<\/a>\u00a0of the responses to this consultation was published in\u00a0March 2023<\/a>, with the government deciding to rule out a number of options\u00a0\u2013\u00a0including \u201cpay-as-bid\u201d\u00a0\u2013 shown in the figure below.<\/p>\n Reform options within REMA, with those discounted marked in red and orange. Source:\u00a0Review of Electricity Market Arrangements: summary of responses to consultation, March 2023<\/a>.<\/em><\/p>\n A second\u00a0consultation<\/a>\u00a0followed in March 2024, with the results published alongside the\u00a0REMA autumn update<\/a>\u00a0in December 2024.<\/p>\n This narrowed the options still further, including ruling out both the \u201cgreen power pool<\/a>\u201d and split market options, both of which would have created a separate market for renewables.<\/p>\n This means that, while there are\u00a0numerous options<\/a>\u00a0within REMA that are still being considered, breaking the link between wholesale power prices and the price of gas is no longer on the table.<\/p>\n The core final decision within REMA is now between reforming the current national wholesale market, where this is a single price for wholesale electricity across the country, or switching to a regional market split into a number of zones with their own prices.<\/p>\n Both options would continue to use marginal pricing, whether at national or regional level. The switch to \u201czonal<\/a>\u201d pricing has been made in numerous markets in recent years, including\u00a0Ontario<\/a>,\u00a0Italy<\/a>,\u00a0Denmark<\/a>\u00a0and\u00a0Australia<\/a>. It is also being\u00a0considered<\/a>\u00a0in Germany.<\/p>\n In the UK, the \u201cbruising<\/a>\u201d question around whether to adopt zonal prices is seen as the \u201cmost hotly\u00a0contested<\/a>\u00a0aspect\u201d of REMA and has become an \u201cenergy death-match<\/a>\u201d.<\/p>\n As such, despite the role of gas in wholesale power prices continuing to be the biggest driver of high electricity bills, it has come to dominate the discussion around market reform.<\/p>\n Those who support zonal prices have claimed it would more closely reflect local supply and demand conditions, ultimately leading to a more efficient electricity system, as well as helping to cut network costs.<\/p>\n Analysis by the\u00a0Energy Systems Catapult<\/a>\u00a0suggests that it would save\u00a0\u00a330bn<\/a>\u00a0by 2035, while a\u00a0study<\/a>\u00a0by FTI Consulting for Octopus Energy found that it could save consumers between \u00a355bn and \u00a374bn by 2050.<\/p>\n Octopus Energy<\/a>\u00a0and its CEO,\u00a0Greg Jackson<\/a>, are some of the most vocal\u00a0proponents<\/a>\u00a0of zonal pricing. Jackson and supporters\u00a0argue<\/a>\u00a0that while it is true that wholesale prices and CfD payments would increase under a zonal system \u2013 by \u00a335bn and \u00a315bn, respectively, over 25 years \u2013 these would be more than offset by a drop in constraint costs and \u201ccongestion rents<\/a>\u201d of \u00a340bn and \u00a365bn.<\/p>\n The impact on constraint costs is a core pillar of the argument for zonal. However, grid balancing costs overall\u00a0\u2013 including constraints\u00a0\u2013 currently only make up 4% of electricity bills. (See:\u00a0Why are UK electricity prices so high?<\/a>)<\/p>\n The shift to zonal pricing is also supported by key organisations such as\u00a0Ofgem<\/a>,\u00a0NESO<\/a>\u00a0and\u00a0Citizens Advice<\/a>.<\/p>\n However, there is also a long list of groups that are strongly opposed to zonal pricing, including\u00a0Energy UK<\/a>,\u00a0Renewable UK<\/a>,\u00a0energy intensive industries<\/a>\u00a0and\u00a0many<\/a>\u00a0individual<\/a>\u00a0energy<\/a>\u00a0firms<\/a>.<\/p>\n These organisations have mustered numerous studies of their own, which they say show that zonal pricing could\u00a0dent investment<\/a>\u00a0and could, as a result, even\u00a0raise costs<\/a>\u00a0for consumers.<\/p>\n In the public realm, the main criticisms of zonal prices focus on the potential for it to create a \u201cpostcode lottery<\/a>\u201d for consumers and to create uncertainty \u2013 and higher costs \u2013\u00a0for investors in the clean power capacity needed to hit\u00a0UK targets<\/a>.<\/p>\n For example, a\u00a0report<\/a>\u00a0prepared by consultants\u00a0LCP Delta\u00a0<\/a>for energy company\u00a0SSE<\/a>\u00a0found that zonal pricing could increase wholesale prices across 97% of the country. Its research suggested a drop in wholesale costs would only be seen in Northern Scotland.<\/p>\n (Advocates for zonal argue that these higher wholesale costs would be outweighed by lower costs for building and managing the electricity network.)<\/p>\n Recent\u00a0research<\/a>\u00a0by consultancy\u00a0Afry<\/a>, summarised in the screenshot below, suggests that the savings from a shift to zonal pricing are \u201coverestimated\u201d and that risks, such as higher borrowing costs, could mean it translated into an increase in energy bills overall.<\/p>\n Jane Cooper<\/a>, deputy CEO at trade body\u00a0RenewableUK<\/a>, said in a\u00a0statement<\/a>\u00a0that people in England and Wales are \u201crightly worried\u201d about zonal pricing creating a postcode lottery, adding:<\/em><\/p>\n \u201cThis scheme would create so much uncertainty in our electricity market that it could disrupt investment in vital new clean-energy projects and push up their costs, at the very time when we need to start building at pace to deliver the government\u2019s target of clean power by 2030. We\u2019re urging ministers to rule out zonal pricing as soon as possible and to focus on policy decisions which do not undermine the confidence of investors.\u201d<\/p><\/blockquote>\n (Analysis<\/a>\u00a0by Cornwall Insight highlights that there is already a \u201cpostcode lottery\u201d of sorts, with households in London paying\u00a0\u00a3120 less<\/a>\u00a0than those in north Wales and Merseyside over the coming year. This is to do with the variation in the regional distribution network charges added to bills. The figures in the sections above are national averages.)<\/p>\n Modelling from\u00a0UKERC<\/a>\u00a0found that zonal pricing could increase strike prices in the next CfD auction by up to \u00a320 per megawatt hour (MWh), as investors seek to factor in the associated risk. It found that higher prices in the CfD auctions could increase consumer costs by \u00a33bn a year.<\/p>\n Non-profit\u00a0Regen<\/a>\u00a0highlighted that the \u00a355bn savings over 20 years, as suggested by FTI, only equates to around\u00a0\u00a331 per household<\/a>\u00a0per year, if applied evenly across current demand.<\/p>\n Ultimately, the\u00a0debate<\/a>\u00a0around the benefits of zonal prices continues, with many aspects of the exact design of such a system \u2013 for example, how many zones there would be \u2013 still undecided.<\/p>\n The government is expected to make a decision on whether to switch to zonal power pricing ahead of the\u00a0seventh CfD allocation<\/a>\u00a0round in summer 2025, to minimise the impact on renewable energy investment by providing greater certainty.<\/p>\n Zonal was chosen over nodal in part because it would be simpler to implement, with the\u00a0government<\/a>\u00a0estimating in 2023 that this would take about 18 months. (It is not clear if this 18-month timeline includes consultation, such as on the number of zones.)<\/p>\n Subsequently, the government has told industry that a shift to zonal pricing would not be put in place until 2032, according to\u00a0RenewableUK<\/a>.<\/p>\n This is supported by recent\u00a0analysis<\/a>\u00a0from consultants\u00a0Cornwall Insight<\/a>, which suggests that a shift to zonal would take closer to five years, until the mid-2030s.<\/p>\n In a statement, Kate Mulvany, principal consultant at\u00a0Cornwall Insight<\/a>, said:<\/p>\n \u201cThe government\u2019s commitment to a decision by mid-2025 is welcome. But we must be realistic: this is the start of a long road, not the finish line. Clear, early communication and a credible delivery timeline will be essential to retain market confidence, keep renewables investment and avoid unintended consequences, which could have substantial impacts on government targets.<\/p><\/blockquote>\n \u201cZonal pricing may still form part of the long-term vision for electricity market reform. But, for now, its delivery sits firmly in the next decade.\u201d<\/p><\/blockquote>\n With zonal pricing \u2013\u00a0and any associated changes in the costs of the electricity system \u2013\u00a0unlikely to kick in before the next election in 2029, the hunt for options to cut bills more quickly continues.<\/p>\n However, there are currently no mechanisms in place that would guarantee a reduction in energy bills in the short term, according to\u00a0Energy UK<\/a>, meaning potential reductions would only be possible if the gas wholesale market tumbles.<\/p>\n Gross says: \u201cWe could all cross our fingers and hope that the global price of gas will collapse over the next few years\u2026[But] it\u2019s definitely not a great energy-security strategy for the long term.\u201d<\/p><\/blockquote>\n Source:\u00a0Energy UK<\/a>. Energy UK\u2019s table of options to reduce electricity bills in the UK in the short term. Source:\u00a0Energy UK<\/a>.<\/em><\/p>\nWhy are UK electricity prices so high?<\/h3>\n
![\"\"](\"https:\/\/www.resilience.org\/wp-content\/uploads\/2025\/05\/Gas-has-sent-UK-household-electricity-bills-2048x1297-1-1024x649.png\")
<\/p>\n![](\"https:\/\/www.carbonbrief.org\/wp-content\/uploads\/2025\/05\/Gas_sets_UK_electricity_prices_far_more_often_than_elsewhere_in_Europe.png\")
<\/p>\n![](\"https:\/\/www.carbonbrief.org\/wp-content\/uploads\/2025\/05\/UK_electricity_prices_are_dictated_by_gas_prices_which_remain_three_times_higher_than_before_the_global_energy_crisis_1.png\")
<\/p>\nWhat has driven the rise in UK household electricity bills?<\/h3>\n
![](\"https:\/\/www.carbonbrief.org\/wp-content\/uploads\/2025\/05\/High_gas_prices_have_caused_most_of_the_rise_in_household_electricity_bills_since_before_the_global_energy_crisis_3.png\")
<\/p>\nWhy network charges on electricity bills are going up<\/h3>\n
![](\"https:\/\/www.carbonbrief.org\/wp-content\/uploads\/2025\/05\/Rising__network__costs_on_electricity_bills_are_not_all_they_seem.png\")
<\/p>\nWhat about UK industrial electricity prices?<\/h3>\n
![\"Simon](\"https:\/\/www.carbonbrief.org\/wp-content\/uploads\/2025\/05\/Screenshot-2025-05-19-at-16.23.58.png\")
<\/a>Frank Aaskov<\/a>, director, energy and climate change policy at\u00a0UK Steel<\/a>, tells Carbon Brief that the debate around industrial energy costs since the start of the global energy crisis has been \u201cpoorly informed\u201d, adding that that is \u201cprobably a bit of an understatement\u201d.Some actors have been \u201cwillingly misinforming others\u201d by blaming net-zero for the problems in the steel industry, says Aaskov, adding that other factors are \u201cmuch more important\u201d. He says:<\/p>\nHow could UK electricity prices be cut?<\/h3>\n
![](\"https:\/\/www.carbonbrief.org\/wp-content\/uploads\/2025\/05\/REMA_options_map_-1.png\")
<\/p>\n![\"Rob](\"https:\/\/www.carbonbrief.org\/wp-content\/uploads\/2025\/05\/Screenshot-2025-05-19-at-16.16.31.png\")
<\/a><\/p>\n\n\n
\n \nOption<\/th>\n Cost<\/th>\n Savings<\/th>\n<\/tr>\n<\/thead>\n \n Maximising flexibility<\/td>\n None<\/td>\n At least \u00a3115 per year for households with flexibility equipment<\/td>\n<\/tr>\n \n Closer UK-EU cooperation on energy<\/td>\n None<\/td>\n Up to \u00a3370m reduction in overall energy costs. Total savings for the economy are likely to be around \u00a310bn this parliament<\/td>\n<\/tr>\n \n Modernising system operation<\/td>\n Small investment in NESO systems<\/td>\n Full savings are hard to quantify. Likely billions of pounds in efficiency savings this parliament.<\/td>\n<\/tr>\n \n Rebalancing policy levies for domestic users<\/td>\n \u00a31.5bn per year (reducing from 2027 as RO & FiT taper off)<\/td>\n Up to \u00a3400 a year to households using electric heating, while guaranteeing that no households see an increase in cost.<\/td>\n<\/tr>\n \n Targeted consumer support<\/td>\n \u00a31.5bn per year<\/td>\n \u00a3400 per year for the 3.17m households currently in fuel poverty, closing the fuel poverty gap completely.<\/td>\n<\/tr>\n \n Invest in energy efficiency<\/td>\n \u00a313.2bn already committed in Labour manifesto<\/td>\n \u00a3140 per year is the average saving to a household from schemes such as ECO and GBIS. A Warm Homes Plan targeted at measures such as clean heat and solar is likely to achieve larger bill reductions.<\/td>\n<\/tr>\n \n Make the most of Contracts for Difference<\/td>\n Negligible<\/td>\n Up to \u00a320 per year for the typical household.<\/td>\n<\/tr>\n \n Optimise network investment<\/td>\n Negligible<\/td>\n Almost \u00a3100 per year.<\/td>\n<\/tr>\n \n Electrify non-domestic demand<\/td>\n \u00a31-4bn to be covered by hypothecated ETS\/CBAMM revenues and general taxation<\/td>\n Level of bill savings depends on the nature of the business. UK supermarkets could save up to 15% on their energy costs.<\/td>\n<\/tr>\n \n Unlock private investment<\/td>\n Negligible (credit guarantees)<\/td>\n Full savings are hard to quantify. Likely to enable a minimum reduction of \u00a3150m in CfD costs.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n