As the Guardian reported last night:
Ministers are considering dropping one of their central green pledges in an effort to keep energy bills down, sources have told the Guardian.
Government insiders say Keir Starmer is prepared to miss his own target of removing almost all fossil fuels from the UK's electricity supply by 2030 if doing so proves much more expensive than building gas power instead.
If this report is accurate, it is deeply depressing, not only because it signals another retreat from climate responsibility, but because it once again exposes how fundamentally broken the UK's system of energy pricing is.
We have, as I have explained many times before, an energy market designed to guarantee windfall profits for energy producers. The problem lies in how the wholesale price of electricity is set.
Electricity is effectively priced for sale in the UK at a level that will ensure that the most expensive unit produced, which in the UK is almost always gas, will deliver a profit for its producer. Even when wind and solar supply most of our power, as is now commonplace, the price consumers pay is determined by the highest cost of generation of a unit sold, even though much of the electricity actually available will have been produced at a much lower price.
This is not a real market. It is an artificial construct designed to favour fossil fuels and to sustain speculative profits. Renewables have almost no running costs once built, but instead of pricing electricity according to the real cost of production, we peg it to the most expensive source - gas - ensuring that everyone pays as if every kilowatt-hour were generated by burning that fuel. The result is massive overcharging for consumers and unearned profits for energy companies.
The government's claim that it is considering new gas investment to “keep bills down” is, therefore, nonsense. Bills are high precisely because we refuse to reform this pricing system. More renewables would reduce the underlying cost of power if only we stopped pretending gas sets the price for everything. But the government prefers to preserve a City-designed, neoliberal-economics-inspired, trading system that benefits fossil-fuel suppliers, hedge funds and speculators.
Investment in renewables is not the problem here. Political cowardice is. Investors in clean energy need price certainty, stable long-term contracts, and proper grid planning, which are things the government can and does provide, but we do not see the benefits. The only real obstacle to lower energy prices, then, is an unwillingness to confront fossil-fuel lobbyists and the market structures that protect their profits.
Let's be clear. If Labour abandons its 2030 clean power target, it won't be because renewables are too expensive. It will be because it has failed to challenge the pricing model that ties the cost of clean energy forever to the price of gas. The truth is the opposite of what ministers are claiming. The more renewables we build, the cheaper electricity becomes. The more we rely on gas, the more exposed we are to global price shocks. The longer we delay reform, the more the UK traps itself in an inflationary, carbon-intensive system that works for traders, not for people.
Labour inherited this failed framework from the Tories. It could change it overnight by separating renewable and gas-priced electricity, guaranteeing cost-based tariffs for clean power, and bringing grid investment back under public control. Instead, it seems ready to recycle the same old excuses, such as “too expensive,” “too risky,” “not yet practical”, while leaving the same dysfunctional market intact.
The irony is bitter. The government claims to be acting to keep bills down when, in reality, it is the market rules it protects that keep them high. A government serious about energy security, decarbonisation and affordability would change the rules, not the targets.
The UK doesn't have an energy pricing problem. It has a political economy problem — a government too timid to challenge the profiteers who set our prices in the first place.
Taking further action
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One word of warning, though: please ensure you have the correct MP. ChatGPT can get it wrong.
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All electricity bills should show a breakdown?
Cost to produce (original + inflation)
Market adjustment (top up to gas price)
Network running
Network improvements (to gen tax?)
Any levies (split Identified )
This “might” help educate the payers and stop some of the nonsense?
“This is not a real market. It is an artificial construct designed to favour fossil fuels and to sustain speculative profits”
What follows is not a niggle – but rather cuts to the core of the issue. All markets are +/- artificial constructs. The UK elec market was “designed” in the 1990s when there was almost zero RES on the system. The design was based on “marginal pricing” – which sort of works with fossil systems (energy source with price tag in – transformation process – MWh out with price tag). The marginal market clearing system is intended also to deliver a rough balance half hour by half hour with respect to generation & load.
Marginal pricing cannot work with RES or hydro or nukes – all are CAPEX (capital expenditure) intense with minimal OPEX (operational….). Fossil gen’ is exactly the reverse. The price of a MWh from RES (etc) is defined by a discounted cash flow based on the CAPEX. If the RES is in a Contract for Difference then the price of a MWh is +/- fixed (with a yearly increment for inflation). The price of a MWh from fossil is a function of the oil or gas or coal price (oil prices are +/- detached from gas prices).
Where does this leave us? The UK elec market system – runs via a database. The database has fields on ofthe fields is the price field. This is variable (obvs). Fro RES (& hydro & nuke) change this to fixed, give priority dispatch to these three gen types and then use the marginal market to fill in any gaps: demand vs generation. Pro-rata volumes (fossil vs RES etc) to get to a real price for generation. Done.
Why has it not happened?: it would bring stability to markets & traders make money on instability. I have run various simulations using real data – thus I’m not offering a PoV but rather reality based on real numbers.
Thanks and agreed
Very (very) interesting. Many thanks for this post!
Are the contracts/systems/processes/etc that define and make up this market available for public scrutiny?
bascially look at Ofgem
https://www.lowcarboncontracts.uk/
this handles the CfDs. Richard is correct – strike prices for CfDs are also announced by Ofgem.
Another failure by the UK energy orgs is how to store surplus RES elec. The current route is to constrain off RES when generation >>> demand. (or when it is not possible due to overloaded transmission lines) to move RES elec from where it is generated to where it could be used (the Scotland problem). LINO want to build lots more pylons (which will take years & billions & you will pay). Options such as electrolysers next to transmission subs are not considered – or booted into the long grass using phrases such as “market based solutions”. Rant over.
Rants encouraged.
Richard – can you pass Mike’s comments to Zack?
From anyone except the traders’ perspective they seem so sensible….
Will do
@Mike Parr. Great work on the supply side.. sounds like a very practical suggestion. On the demand side, maybe It would also be great to model differential pricing models and schemes which, for example, encouraged domestic insulation or allowed strategic industries, like electroplating, to be more competitive?
Mike
for the simple like me-in your other post you mention ‘electrolysers near transmissions subs’
Am I right in thinking this could create hydrogen which could be used for e.g. lorries where batteries would be too heavy?
“It is an artificial construct designed to favour fossil fuels…”, the current system was designed in 1996 when renewables were more expensive and I believe was designed to help renewables. However 30 years later it is now hindering the renewables sector, screwing consumers and aiding the fossil fuel industry.
Is the simplest solution to the current system just to set the price as an average cost of generation ? And then pay the generators the actual price that their electricity was bid at.
The choice to keep it is a design to favour fossil fuels
Starmer’s 10 pledges
“Pledge 3 – Climate Justice
Put the Green New Deal at the heart of everything we do. There is no issue more important to our future than the climate emergency.
A Clean Air Act to tackle pollution locally. Demand international action on climate rights. ”
Starmer lied.
If it was “Climate JUSTICE ” then, it is still climate justice NOW.
Justice isn’t negotiable just because of the latest fiscal rule.
We have a moral crisis. Our government not only lies, but they don’t care that we know about it. Starmer is a shameless liar, and the press allow him to get away with it day after day.
You are right: he lied
Miliband is determined to impose new nuclear power stations on Scotland despite almost all our electricity coming from renewable sources and also providing renewable energy to England. Pricing on gas is even more sickening for us Scots whose electricity prices are higher than any in England.
According to the National he’s organising English Energy to scope out sites in Scotland; as soon as LINO wins the Holyrood election next year(!) he will meet the nuclear industry “on day one” to discuss siting nuclear stations in Scotland to power England.
Scotland is to become a massive power station to power England.
He can f right off.
Yet another example of our government’s propensity to kiss the strong and kick the (currently) weak?
I am sure Dale Vince who runs Ecotricity would agree with you. He has highlighted quite a few of the (shall we say) idiosyncrasies of the energy markets in both gas and electricity generation sectors. He often talks about this in his podcast. There clearly are alternative ways to organise the UK energy sector for the benefit of consumers but LINO refuses to act. I wonder why ( he says sarcastically,)?
🙂
There’s also this piece of journalism: https://bylinetimes.com/2025/10/22/the-real-energy-scandal-the-media-wont-tell-you-about/
Thanks
By the way there is a simple way to increase the current capacity of the high tension electricity system by converting it to DC.
Note the the overhead electricity pylons have 3 cables on each side, this is because it is 3 phase and thus must have 3 cables. With out affecting the the existing cable 3, the circuits could by changed to 3 off 2 circuit cables thus increasing the capacity by 50%. It would need high power and voltage equipment to convert from 3 phase to 2 phase and back but this could easily be constructed with out shutting down the power and the switchover would be relatively quick.
Note all the undersea cables are 2 wire DC constriction.
Ireland uses a significant amount of UK electricity and because of the high cost, are planning an under sea cable to Spain to reduce the electricity cost of UK supply.
Mike Parr also relates this tale.
My old DNO MANWEB (now part of Scottish Power – owned in turn by Iberdrola) has a DC link running between mainland Wales & Anglesey – across Sephensons railwaybridge btw – repurposed 33kV AC cables now carrying DC. The problem is: the converter stations are not cheap, but in this case were cheaper than adding more cables – plus, with DC you can have total control over power flow & indeed move it backwards an forwards at will.
Convert the 400kV transmission systems to DC – same argument.
On a related note, the UK could salami-slice its power problem by making villages and small towns more elec/energy independent. e.g. I have made a proposal to reduce the elec costs for the 8000 households in Port Talbot by 50% (& deliver +/- 100% RES elec – locally produced) – plus some knock on benefits – dead silence from the politicos – despite LINO facing a wipe out in Wales next year. The salami-slice approach would reduce load on the existing transmission system – allowing it to focus on cities etc. Apparently this approach is…. too difficult?
One has to wonder – what happened to the country that the Stephensons came from?
We forgot real engineering. Those in power are only interested in financial engineering now.
The article is correct to question elec costs in the UK. It fails to recognise that Nat Grid was split up in 2024 into an asset company (quoted on the stock market) and an operations & control company (owned by the gov). This is an important change & offers the possibility to reign in growing costs.
Sadly, at the moment, Nat Grid (operations) remains focused on electrons, not energy (there is a subtle difference). So “build-baby-build” elec networks is still the main focus. This is very unfortunate since there are a range of alternatives.
Sorry – be warned – I’m going to have a Bob Geldof Live Aid moment and say to Rachel Reeves and Stymied would please just print some fucking money!!!
It’s obvious that if the government paid for the investment in Green, it would not need to be in the bills of its voters?
Jesus wept……………………..!!
Taking a different tack – I agree we need to go green but also appreciate that we need gas security while we transition
How about we use the nuclear commercial model – get an operator to develop and operate the Jackdaw gas field (10% of UK requirements I think I heard) at a fixed tariff over 25 years say. This secures 10% of our gas and fixed profit to the operator, reduces our exposure to the gas market. Note this 10% will grow as we increase green energy and use gas less
PS Rosebank is an oil field and oil goes straight to the market so absolutely nothing for our energy security. Why did they tie the two together ? So one can mask the environmental and energy security impact of the other
I will leave Mike Parr to comment, if he wishes to do so
Yes – why not.
Cold dark calm winter night – happens quite regularly – there will be a need for gas back up. I’m not against gas, I am against the Uk insisting it pays “market” prices.
Yes, a totally artificial pricing structure. Here in Devon my supplier is British Gas for both gas and electricity. Every Sunday afternoon and on some other days I am offered half-price electricity because a surplus is produced via solar and wind generation. The joint standing charge is more than £30 per month which in summer can be more than the gas and electricity consumed.
From a poster above …”to move RES elec from where it is generated to where it could be used (the Scotland problem)”.
Don’t you mean “the England problem”?
England’s the country which lacks capacity. Scotland has no lack of electricity.
Labour as always promised a load of green wash and instead has delivered what the fossil fuel financiers want. So frustrating as we are an island very rich in renewable energy sources such as wind, solar and hydro. Other countries are much less blessed.
Naomi Klein in her book Everything Must Change talks about the need for publicly owned electricity infrastructure and the need to develop the transmission network to accommodate renewals. This is heavy upfront investment but necessary to manage the variability of wind, solar etc. These are the green jobs we should be investing in. Asa Green I’m anti nuclear on environmental grounds, but also it’s very expensive and can’t be brought online quickly unlike wind and solar. We have the knowledge and some expertise but no government willingness. I’m with Greta, blah,blah,blah!
@Mike Parr “….the UK could salami-slice its power problem by making villages and small towns more elec/energy independent.” Like this, in the Netherlands, using energy co-operatives as the governing structure: https://energie.vanons.org/goed-voor-je-buurt/ and https://www.rescoop.eu/news-and-events/stories/february-success-story-the-rising-tide-of-dutch-cooperatives ?
Great article and very interesting and useful comments.
My question is: given the details of the energy market are not entirely trivial, do any of the politicians in government know and understand them?
It appears not
You beat me to it, ABC! The anglo-centric UK might think of it as the Scotland problem, but the real Scotland problem will be when/if Scotland goes independent and starts selling energy.
Another factor that gets my back up is standing charges. I get the grid-connection bit, but when a supplier goes bust and its customers are transferred to another supplier. The customers of the recipient company get charged with the costs of incorporating the transferred customers, when in fact a new income source has been handed to the company.
An independent Scotalnd will be built on energy and water, and then prosper from there.
And, don’t forget, uisge beatha, water of life 😉
Energy prices, along with everything that neoliberalism controls, is subject to extracting as much profit as possible.
It is part of their mantra: defunding of all public services, deregulation, privatisation in order to profit.
For a detailed explanation and history from Milton Friedman to Margaret Thatcher, read:
The Shock Doctrine: The Rise of Disaster Capitalism by Naomi Klein
https://amzn.eu/d/2Y9Zucx
Great post as ever.
A couple of gentle observations:
1. Whilst fossil fuels are by far the worst option from an ecological perspective, it just feels important to observe that every energy source has some ecological impact. There is as such no “clean energy” but rather a gradient.
https://www.sciencedirect.com/science/article/pii/S0360544225007819#sec3
2. It is also important to note that “energy” and “electricity” are not interchangeable. I can’t find a reliable number for the UK but a fair rule of thumb seems to be that electricity represents around 1/5 to 1/4 of energy consumption.
https://www.iea.org/countries/united-kingdom/energy-mix
https://www.iea.org/countries/united-kingdom/electricity