Why are Britian’s power prices the highest in the world:
The UK is currently stifled by electricity prices that are among the highest in the world. UK industry is spending 60% more per unit of electricity than any other European nation, but the reasons behind this are complex. Despite renewable energy expanding from 15% a decade ago to over 40% of the grid mix today, the structure of the electricity market means that fossil fuels, and particularly gas, continue to set power prices.
Infrastructure and Transmission
Several factors keep the UK’s electricity prices high. First, Britain’s infrastructure is a barrier. Being an island makes it costly to build interconnectors with continental Europe, limiting their capacity. This isolation limits the ability to import cheaper electricity from overseas when demand is high or renewable output low.
Britain also lacks transmission capacity within its borders, so we are spending hundreds of millions of pounds on compensating wind farms that are unable to deliver power due to network congestion.
Upgrading and expanding the grid to handle increasing renewable capacity involves significant costs, which are ultimately passed on to consumers.
Energy Policies
Second, there are the costs imposed by energy policies. Around a quarter of a typical UK electricity bill comes from policy costs, including environmental taxes and subsidies. While these measures support the green transition, they also raise prices. Most of these levies are applied to electricity but not to gas, a choice that works against decarbonisation by making electric vehicles and heat pumps less attractive. In addition to the ‘environmental & social’ cost category shown below, policies that charge for carbon emissions lead to higher wholesale prices (and are included in that category).
Support for renewable generators from Feed-in Tariffs and similar schemes falls under environmental costs. Older generators receive payments on top of the wholesale price, however high it is. More recent wind farms and biomass plants were instead awarded fixed-price Contracts for Difference, meaning they repay the government whenever wholesale prices exceed contract prices. During the 2022–23 price spikes, these renewables were saving consumers money.
Wholeseale Cost, Law of One Price
The elephant in the room is the wholesale cost, which rose by two-thirds over the last five years and makes up the largest share of our bills. This is an issue of how we price electricity. Britain’s electricity industry holds an auction every day in which generators bid the price they would be willing to generate for.
The highest bid that is needed to meet demand then sets the price for all generators. Some of our gas-firedplants are almost always needed to meet demand, so they set the price and that reflects their costs. This ‘marginal’ price is then paid to all generators, even ones that run 24/7, as the electricity they produce is worth just as much as that from any plant.
Most markets work in this way: Saudi Arabia’s oil is cheap to produce but gets a very similar price to higher-cost oil from the North Sea. The underlying economic principle is so widespread that it’s known as the Law of One Price.
New Rules being introduced by OFGEM are set to enable renewable energy projects to connect to grid faster:
The regulator said its new Advanced Procurement Mechanism will allow early access to almost £4 billion of investment for crucial transmission equipment and services.
Under the scheme, transmission owners will be able to buy essential equipment, such as switchgear, cables and steel, years in advance of when it is needed.
OFGEM said the streamlined process will ensure green-lit projects are ready to break ground as soon as planning approval is granted, and avoid delays, control costs and attract international investment in the drive to net zero.
Battery energy storage systems revenues surge:
Battery energy storage system (BESS) revenues have surged over the past year thanks mainly to the introduction of a new tool by the system operator.
Data compiled by Cornwall Insight shows average BESS revenues have quadrupled with the rise largely attributed to the introduction of the quick reserve frequency management tool. Tight system margins were also a factor in the increased revenues.
The tool ensures system stability by getting batteries to rapidly ramp up or down energy use within one minute.
However, the report said although quick reserve has provided a valuable additional revenue source for batteries in recent months the trend may not continue given the current pipeline of new battery capacity due to come online.
Renewables plugging gap as energy demand rises:
Emerging and developing economies accounted for over 80% of the increase in global energy demand in 2024 despite slower growth in China, where energy consumption rose by less than 3%.
Increased renewable energy capacity helped fill the gap as global energy demand grew at a faster-than-average pace in 2024, a report has found.
The International Energy Agency’s annual review found that global energy demand rose by 2.2% last year, considerably faster than the average annual demand increase of 1.3% between 2013 and 2023.
The expanding supply of low-emissions sources covered most of the increase in global electricity demand in 2024. The amount of new renewable power capacity installed worldwide rose to around 700 gigawatts, setting a new annual record for the 22nd consecutive year.
The report shows electricity use is growing rapidly, pulling overall energy demand along with it to such an extent that it is enough to reverse years of declining energy consumption in advanced economies.
Public wants UK to be global climate leader:
More than two-thirds of respondents believe it is important that the UK is a global leader in tackling climate change, according to the latest Government survey. The Public Attitudes Tracker, which assesses views on energy and climate change, also found that awareness of the 2050 Net Zero target stood at 91%.
The question on the UK’s role as a global leader was posed for the first time in the latest survey which continued to show strong support for renewable energy.
The poll also questioned respondents on the Government’s launch of Great British Energy. While 60% said they were aware of it, only 12% reported knowing ‘a lot’ or a ‘fair amount’ about it.
Wind won’t work without storage:
A large increase in energy storage will be critical to ensuring a clean power system by 2030. The UK must significantly expand energy storage to achieve its clean power system target by 2030, as a tenth of wind-generated electricity is currently wasted.
A report by Drax and Imperial College London highlights that last year, wind power became the UK’s largest electricity source (31%), surpassing fossil fuels for the first time in 140 years.
However, 8.3 TWh of wind energy—enough to power two million homes—was lost due to grid congestion, costing consumers nearly £400 million.
Investing in long-duration energy storage (LDES) and battery energy storage systems (BESS), alongside grid improvements, could store surplus wind power and release it when needed, reducing reliance on gas during low-wind periods.
“Investment in intermittent renewables such as wind and solar is helping us reduce fossil fuel levels in our power generation mix but without large-scale energy storage and grid upgrades, we will continue wasting clean energy and paying the price for it, especially during long cold snaps and windless conditions.” Dr Iain Staffell, Imperial College.
With upgraded energy storage and the transmission infrastructure to transport it, the report finds we can stop renewable energy wasted. Instead, power could be moved to where it is needed as well as storing it until it’s needed.
New Ireland/UK Interconnector starts operating:
A new subsea electricity interconnector between Ireland and the UK has gone live. Commercial operation of the 500MW Greenlink project between Wexford and Wales followed a successful testing period and a three-year construction period. The new interconnector will double Ireland’s interconnection capacity to 1GW.
Greenlink is a subsea and underground electricity interconnector cable (with associated converter stations) linking the existing electricity grids in Ireland and Great Britain (GB) and has a nominal capacity of 500MW.
Greenlink will provide a new grid connection between EirGrid’s Great Island substation in County Wexford (Ireland) and National Grid’s Pembroke substation in Pembrokeshire (Wales). The power will be able to flow in either direction, depending on supply and demand in each country.
Greenlink has key strategic importance, as it will provide significant additional interconnection between Ireland and Great Britain, with onward connections to continental Europe. The construction will deliver increased energy security, regional investment and value for money to consumers, and will enable the further integration of low carbon renewable energy sources.
The project will potentially provide energy for 380,000 homes and is two-way. Wind hits Ireland first therefore can power Ireland and any excess sent to GB. Scotland will then pick up the generation and any excess can go to Ireland.
That concludes this issue of the UK Energy Industry News Update, highlighting key developments shaping the energy sector. For further details or to discuss how these changes may impact you, please contact us.