The UK’s high electricity prices have become intensely political, with competing claims over the cause of rocketing bills and how best to get them down.
Prices spiked after Russia cut off gas exports to Europe, precipitating a global energy crisis alongside its invasion of Ukraine in 2022.
The UK has been particularly exposed, as gas sets its wholesale power prices 98% of the time – and gas remains three times more expensive than before the crisis.
Nevertheless, some have sought instead to misleadingly blame the UK’s high power electricity on “green levies” that support the expansion of clean power, as well as the target for net-zero emissions by 2050.
While the UK is making significant investments in new clean-power capacity and in upgrading its electricity grid, “green levies” 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.
Moreover, part of the rise in network charges is also down to gas, resulting from utility firms going out of business during the energy crisis, as well as high gas-related costs for managing the electricity grid.
Dhara Vyas, chief executive of industry body Energy UK tells Carbon Brief that it is “crystal clear what has driven electricity bills up in the UK…it’s the wholesale costs, driven by the price of gas”.
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.
(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.)
- Why are UK electricity prices so high?
- What has driven the rise in UK household electricity bills?
- Why network charges on electricity bills are going up
- What about UK industrial electricity prices?
- How could UK electricity prices be cut?
- What will the UK’s climate goals mean for bills in the future?
Why are UK electricity prices so high?
In the months before Russia’s invasion of Ukraine in early 2022, global gas prices had already started to rise as the global economy bounced back from the Covid pandemic and Russian president Vladimir Putin began restricting energy supplies to Europe.
In the wake of its invasion of Ukraine in February 2022, Russia then cut off the bulk of gas deliveries to Europe, having previously been the continent’s biggest source of the fuel.
Gas prices rocketed – and so did the UK’s energy bills. Millions of households were left in fuel poverty, despite the government spending £100bn on support to alleviate the pressure.
While gas prices have subsided from their historic highs in 2022, as of May 2025, they remain three times higher than they were before the global energy crisis.
As such, despite all of the media commentary and politicians’ speeches arguing the contrary, the UK’s exposure to high gas prices is still, by far, the biggest reason for the country’s high electricity prices.
(In 2022, International Energy Agency (IEA) chief Dr Fatih Birol wrote in the Financial Times that it was “absurd” to blame high prices on clean energy. He added: “When people misleadingly blame clean energy and climate policies for today’s energy crisis they are, intentionally or not, moving the spotlight away from the real culprits – the gas supply crunch and Russia.”)
The figure below shows the price cap for household electricity bills set by energy regulator Ofgem, breaking down the different elements of average household costs over the past decade.
The biggest driver of recent increases in electricity bills is the wholesale price of electricity, which is set in the UK almost exclusively by wholesale gas prices (see below).
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’s invasion of Ukraine in 2022.
In contrast, “green levies” – costs added to bills in order to pay for government climate policies – actually 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.
In recognition of these basic facts, the UK’s prime minister Keir Starmer has reiterated the link between high energy bills and the country’s exposure to fossil-fuel prices.
The UK’s households and businesses have “paid the price” for “our over-exposure” to fossil fuels, he told an energy security summit in London at the end of April 2025, attended by Carbon Brief and jointly hosted by the UK government and the IEA.
Starmer told the summit that half the UK’s recessions since the 1970s had been caused by “fossil-fuel shocks” and that his government was “determined” to get the country off the “roller-coaster of international fossil-fuel markets” by shifting to clean energy:
“When it comes to energy, we’re 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’ household budgets vulnerable to the whims of dictators like [Russian president Vladimir] Putin, to price hikes, and to volatility that is beyond our control.”
Under the latest price cap from Ofgem, the average household now faces an electricity bill of £926 per year, up from £603 before the energy crisis – a rise of 54%.
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.
The biggest change in these costs has come from the spike in wholesale energy costs.
Other elements of household electricity bills have also gone up over the past decade, including network charges and levies. (See: What has driven the rise in UK household electricity bills?)
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.
One common objection to these facts is that gas prices have been equally eye-watering in other European countries, but their electricity prices have not been quite so affected as the UK’s.
Whereas the UK once had middling power prices relative to other European countries, it has risen up the ranks to post some of the continent’s costliest electricity per unit.
(Figures comparing electricity prices in European capital cities in April 2025 put the UK fourth, whereas France is close to the continental average.)
The biggest reason for this rise in the UK’s relative prices is the fact that its power system is far more exposed to gas-fired generation than other countries.
Specifically, gas sets the wholesale price of electricity in the UK 98% of the time, according to academic research published in 2023. This is far more often than in other European countries, including France (7%) or Germany (24%), as shown in the figure below.
The UK’s electricity market operates using a system known as “marginal pricing”. This means that all of the power plants running in each half-hour period are paid the same price, set by the final generator that has to switch on to meet demand, which is known as the “marginal” unit.
While this is unfamiliar to many people, marginal pricing is far from unique to the UK’s electricity market. It is used in most electricity markets in Europe and around the world, as well as being widely used in commodity markets in general.
Still, the UK’s current electricity mix means that gas is almost always the marginal fuel, even though it only accounts for a third of generation overall.
(In contrast, the marginal fuel in many other European countries is hydro. In France, it tends to be nuclear, while in Germany it is split between coal, gas and hydro.)
The result is that the UK’s wholesale electricity prices track wholesale gas prices almost perfectly, as shown in the figure below.
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.
Prof Rob Gross, director of the UK Energy Research Centre (UKERC), tells Carbon Brief:
“I think the bottom line on it all is that we are particularly exposed to gas prices…That’s the principal driver of our [electricity] prices.”
Energy UK chief Vyas said in a recent statement that “it’s the volatile cost of fossil fuels and our dependence on them that have driven up energy bills for customers”.
In comments to Carbon Brief for this article, Vyas expands on the point, explaining how the UK’s exposure to imported fossil fuels has left it worse off than its neighbours:
“Our electricity prices are high largely because our energy system depends on imported gas – 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 – and why, despite falling from that peak, they remain high compared to three years ago. It’s also largely why our energy costs are higher than our European counterparts.”
What has driven the rise in UK household electricity bills?
Since 2021, the household electricity price cap set by regulator Ofgem has risen from £603 per year for average households to £926 per year – an increase of £324, or 54%.
Some £162 of the increase is due to wholesale costs, which have roughly doubled over the period.
Put another way, the UK has spent £140bn on buying gas since the start of the global energy crisis, according to the Energy and Climate Intelligence Unit (ECIU).
Vyas tells Carbon Brief:
“It’s 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 – every single time it’s 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.”
Underneath the large spike in wholesale power costs due to the “roller coaster” of international gas markets, there have also been steady increases in policy and network charges in recent years. This includes the “green levies” that support the expansion of the UK’s clean energy supplies.
Specifically, some £63 has been added to bills since 2021 as a result of rising network charges, another £18 from “green levies” and £65 from other sources.
(Notably, as explained below, part of the rise in network charges is also due to high gas prices.)
This means that network charges and “green levies” account for 20% and 6% of the rise since pre-crisis levels, respectively, compared with 54% due to higher wholesale prices.
These contributions to the increase in electricity bills since 2021 are shown in the figure below.
As explained above, the driver of higher wholesale electricity costs is high gas prices, with the fuel remaining three times more expensive than before the global energy crisis.
In contrast, “green levies” have gone from £118 per year in summer 2021 to £137 today. As bills rose dramatically in this period, the share due to green levies has dropped from 20% to just 15%.
The small rise in green levies is due to a £22 inflationary increase in the cost of the “renewables obligation” (RO) scheme, which closed to new projects in 2017. The RO currently adds £89 per year to average household electricity bills, some 10% of the total.
Ironically, this means that the cost of renewable support has risen, at least in part, because of high gas prices, which have contributed to higher-than-expected inflationary pressures.
The RO still supports around 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.
In 2023, the then-Conservative government sought views on changing the measure of inflation used to calculate the RO each year from the “technically deficient” index known as “RPI”, to the lower “CPI”. However, this shift was not pursued.
The cost of renewables that hold newer “contracts for difference” (CfDs) has actually fallen by £5 per household per year since before the energy crisis – from £32 to £27 – despite supporting more capacity than four years ago.
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.
In total, the RO and CfDs currently add around £10bn a year to end-user electricity bills, of which households account for around a third. This amounts to £116 per household per year.
The Office for Budget Responsibility (OBR) forecasts that the combined cost of the RO and CfDs will rise by 3% between now and the end of the decade, from £9.6bn to £9.9bn.
Current electricity bills also include £20 to pay for “feed-in tariffs” (FiTs), which were offered to small-scale renewable schemes until 2019. This is up by £2 per year since before the crisis.
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.
The cost of government social policies adds another £36 to average electricity bills, up £18 since summer 2021 due to higher spending on insulating the homes of families on low incomes.
This type of spending had been falling until 2019, after the then-Conservative government tried to lower energy bills from 2013 by “cutting the green crap”. Although these efforts reduced bills in the short term, they ended up adding £22bn to bills in the long term, previous Carbon Brief analysis found, because they left homes more exposed to the spike in gas prices during the energy crisis.
Vyas tells Carbon Brief:
“For well over a decade, investors have been telling us they want to see ambition and certainty from government. Taking a ‘boom and bust’ approach, where policy and direction of travel keep changing, adds costs to everyone’s bills. For example, the infamous move to ‘cut the green crap’ cost customers in this country billions of pounds, as Carbon Brief has demonstrated.”
Why network charges on electricity bills are going up
Alongside wholesale prices, network charges have also seen significant increases since before the global energy crisis, as noted above. These charges have risen by £63 from £136 a year in summer 2021 to £198 today, up by nearly 50%.
The figure below breaks down the £200 cost of network charges per household per year.
Some £115 of this – 13% of bills – is earmarked for “distribution” networks, which deliver electricity to households and businesses at lower voltages. This segment has seen the largest increase of all network charges, adding £25 per year.
Next is the national “transmission” network, at £51, which moves electricity around the country on towering pylons carrying high-voltage lines – sometimes referred to as the “motorways of the grid”. While these costs have risen by more than half since 2021, this still only added an extra £18 to bills each year.
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 £12 a year in 2021 to £32 today.
Many articles on the UK’s 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.
While major investments are 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.
For example, the cost of bailing out the dozens of electricity retailers that went out of business during the energy crisis – ultimately, as a result of high gas prices – is being paid for by households and is included within distribution network charges under the Ofgem price cap.
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.
However, in 2022, Ofgem said that £66 was being added to household bills to pay for these failures under a scheme known as the “supplier of last resort” (SoLR). This aligns with the first hump in the figure above – and the second hump likely relates to further SoLR costs.
For grid balancing costs, there is a similar story, because high gas prices make it more expensive to manage the electricity system.
National Grid Electricity System Operator (NESO) sometimes pays gas power plants to switch on – and these “redispatch” instructions are more expensive as a result of high gas prices.
NESO explains that balancing costs are “strongly in correlation to the wholesale spot electricity markets and [therefore] dependent on the natural gas market”.
A gas-related bump in balancing costs is clearly evident in the figure above.
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 “constraints” on the network that result in wind projects being paid to switch off – known as curtailment.
Constraint costs have risen because grid capacity has not kept pace with the number of new wind power projects being built, particularly in Scotland.
A series of new grid connections are being built between Scotland and England, which will add to transmission charges while cutting balancing costs.
The second additional factor for balancing charges is that, since 2023, consumers have paid for 100% of these costs, whereas they were previously shared equally with electricity generators.
Despite their rapid recent rise, balancing charges still only add £32 a year to average household electricity bills, including the much–publicised cost of wind constraint payments.
One analyst tells Carbon Brief:
“I know people make a great fuss about constraint payments…it sounds like a big number. It’s actually not, in terms of its impact on bills.”
A final important factor in rising network charges is that the UK’s electricity networks are ageing and require significant ongoing investment in order to replace old equipment before it fails.
(For example, the substation fire that closed Heathrow airport earlier this year started in a transformer that had been commissioned in 1968, making it 57 years old.)
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 report called “under-investment”.
The 2003 report, on the resilience of the electricity network, said that customers at the time had been “living off the investment made by [their] predecessors” and that there was “insufficient investment” to replace old equipment “in a planned and orderly way”.
Similarly, a 2009 Ofgem report on energy network price controls found that distribution network operators “may not have been carrying out the investment required to maintain” the grid.
Gross tells Carbon Brief:
“My suspicion is that the investment to facilitate renewables being connected to the grid is a pretty small fraction of that increase [in network charges]…I think [a lot of it is] the legacy of maybe…squeezing and minimising expenditures in the immediate post-privatisation period.”
To be clear, it remains the case that major investments are being made in expanding the grid – and that these investments will, ultimately, be paid for via consumer electricity bills.
Yet, to take one example, expanding the distribution network to support the electrification of heat and transport will add just £5-10 to annual household bills by 2030 and £20-25 by 2050, according to a February 2025 report from the National Infrastructure Commission (NIC), now part of the National Infrastructure and Service Transformation Authority.
The relatively low annual cost increase to households is despite these investments totalling as much as £50bn, according to NIC. (This is a good illustration of the way that “scary-sounding numbers” can be used to mislead people about the “cost” of the transition to net-zero.)
Moreover, NIC expects household energy bills to drop significantly overall by 2035, even as electricity network charges rise. (It sees the average dual-fuel bill for electricity and gas falling from just shy of £2,000 a year in 2019 to around £1,300 by 2035 and to less than £1,200 by 2050.)
In broader terms, rising levies and network charges illustrate the changing nature of electricity bills – and energy bills more broadly – as the UK shifts towards net-zero.
Historically, fuel costs have accounted for the bulk of energy bills, including not only household gas and electricity, but also the cost of motoring.
In a net-zero future, fuel costs would be massively reduced, as gas for heat and power, as well as petrol in cars, are progressively replaced with more efficient electrified alternatives.
Notably, this means that part of the cost of upgrading, decarbonising and expanding the UK’s electricity system would translate into major savings in the cost of UK transport.
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.
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: What will the UK’s climate goals mean for bills in the future?)
What about UK industrial electricity prices?
The UK’s industrial electricity prices have also been a prominent fixture in the debate over why energy costs have become so high, particularly following the latest crisis in steelmaking.
In November 2024, the Financial Times had published a chart showing that industrial electricity prices in the UK in 2023 were far higher than in any other country listed.
The idea that the UK’s industrial power prices are among the “highest in the world” has now become firmly embedded in the political discourse.
Yet this discourse frequently ignores the dominant role of gas in driving high prices.
In her March 2025 speech abandoning Conservative support for the UK’s net-zero by 2050 target, opposition leader Kemi Badenoch misleadingly blamed high power prices on climate policies in general and “environmental levies” in particular.
The debate around industrial power prices was supercharged at the end of March with the news that the owner of the Scunthorpe steelworks, British Steel, planned to shut it down.
After the closure was averted by a government takeover, an April editorial in the Daily Telegraph illustrated the tenor of much of the commentary in right-leaning, climate-sceptic newspapers by confidently blaming the crisis on “sky-high energy costs imposed by successive governments in the name of net-zero”.
Like so many others debating the UK’s high industrial electricity prices, the editorial failed to even mention the word “gas”, let alone acknowledge its role in driving up costs.
In reality, the UK steel industry is completely exempt from “environmental levies” and – under the government’s “supercharger” scheme – it also gets relief from the majority of network costs.
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.
Indeed, as UK Steel explained in a recent report, environmental levies have a smaller impact on steel industry electricity bills in the UK than in neighbouring countries.
Frank Aaskov, director, energy and climate change policy at UK Steel, tells Carbon Brief that the debate around industrial energy costs since the start of the global energy crisis has been “poorly informed”, adding that that is “probably a bit of an understatement”.
Some actors have been “willingly misinforming others” by blaming net-zero for the problems in the steel industry, says Aaskov, adding that other factors are “much more important”. He says:
“Net-zero, in itself, is not the cause of the decline in the steel industry. There are much more important factors, such as global overcapacity, [as well as] inflexible and unambitious trade policies.”
While Aaskov identifies high industrial electricity prices as a “key factor” for the sector, he says that “today, it’s not net-zero policies” that are causing those prices to be high. He says:
“Today, [net-zero policies] are not the driver of high industrial electricity prices in the UK. It is higher network charges – because we have lower exemptions than there are in Germany and France – and it’s the cost of natural gas, which is driving the higher wholesale price.”
Aaskov says attempts to blame net-zero are “unhelpful to the steel industry, especially because we as a sector have committed to decarbonising, our members are making huge investments in reducing emissions and Port Talbot is the key example of that”.
How could UK electricity prices be cut?
Ever since the start of the global energy crisis in 2022, debate has been raging over how to get spiralling energy bills under control.
The spike in gas prices put the spotlight on its role in setting wholesale power prices via marginal pricing, leading some people to call for electricity market reform.
In April 2022, the then-Conservative government launched a “review of electricity market arrangements”, known by its acronym REMA. It ran the first consultation in July that year.
Although the review was much broader in scope, it was presented as a way to tackle high electricity prices and – potentially – to decouple them from the high price of gas.
In the foreword of the first REMA consultation, then-energy secretary Kwasi Kwarteng said that the electricity markets will be the “backbone” of the future electricity system, so it is “critical” to get the design right. He added:
“The 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.”
The consultation explained that, while the use of marginal pricing left UK wholesale power prices “closely track[ing] gas prices”, the impact of this would “naturally diminish over time” as the share of generation coming from gas declined and that of clean power increased.
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 “split by characteristic”, or that offered generators a price reflecting their own costs, rather than that of the marginal unit (“pay-as-bid”).
A summary of the responses to this consultation was published in March 2023, with the government deciding to rule out a number of options – including “pay-as-bid” – shown in the figure below.
Source: Review of Electricity Market Arrangements: summary of responses to consultation, March 2023.
A second consultation followed in March 2024, with the results published alongside the REMA autumn update in December 2024.
This narrowed the options still further, including ruling out both the “green power pool” and split market options, both of which would have created a separate market for renewables.
This means that, while there are numerous options within REMA that are still being considered, breaking the link between wholesale power prices and the price of gas is no longer on the table.
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.
Both options would continue to use marginal pricing, whether at national or regional level. The switch to “zonal” pricing has been made in numerous markets in recent years, including Ontario, Italy, Denmark and Australia. It is also being considered in Germany.
In the UK, the “bruising” question around whether to adopt zonal prices is seen as the “most hotly contested aspect” of REMA and has become an “energy death-match”.
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.
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.
Analysis by the Energy Systems Catapult suggests that it would save £30bn by 2035, while a study by FTI Consulting for Octopus Energy found that it could save consumers between £55bn and £74bn by 2050.
Octopus Energy and its CEO, Greg Jackson, are some of the most vocal proponents of zonal pricing. Jackson and supporters argue that while it is true that wholesale prices and CfD payments would increase under a zonal system – by £35bn and £15bn, respectively, over 25 years – these would be more than offset by a drop in constraint costs and “congestion rents” of £40bn and £65bn.
The impact on constraint costs is a core pillar of the argument for zonal. However, grid balancing costs overall – including constraints – currently only make up 4% of electricity bills. (See: Why are UK electricity prices so high?)
The shift to zonal pricing is also supported by key organisations such as