As energy prices in the United Kingdom continue to climb, a chorus of voices from right-wing politicians, think tanks, and media outlets are promoting a misleading narrative. They claim that the nation's commitment to net zero policies and renewable energy is driving up costs, advocating instead for a renewed focus on North Sea gas extraction. However, these assertions are not only incorrect but represent a complete inversion of reality.
The True Driver of High Energy Bills
Two significant trends have emerged in recent years: electricity prices have surged, contributing substantially to the cost-of-living crisis, and the share of electricity generated from renewables has expanded dramatically, rising from 3% in 2000 to 47% today. Critics incorrectly link these trends, suggesting that increased renewable usage causes higher prices. In truth, renewables, primarily wind and solar, constitute the most affordable component of the UK's energy supply, a pattern observed globally.
The price of electricity does not reflect the overall mix of sources but is determined by the most expensive component at any given time. Currently, that component is fossil gas. Even prior to recent geopolitical tensions, gas prices were exceptionally high and rising rapidly. This, more than any other factor, is responsible for elevated energy bills.
How Marginal Cost Pricing Works
This pricing mechanism operates through a system known as "marginal cost pricing." While the majority of electricity supplied to the grid comes from renewables and nuclear power, it is sold on wholesale markets at the price of the last-resort power source needed to fill supply gaps, which is often fossil gas. In the UK, gas sets the electricity price 98% of the time, compared to an EU average of 39%. This discrepancy arises because many EU nations rely on hydroelectricity or nuclear as backup sources, whereas the UK depends heavily on gas.
Improving electricity storage could provide a cheaper, more secure, and less volatile last-resort option, a development the government is pursuing despite media opposition.
The North Sea Fallacy
Proponents of "maximising the North Sea" argue that increased domestic gas extraction would lower electricity costs. This ignores basic economics: gas prices are set on international markets, influenced by major suppliers like the US, Iran, and Russia. The UK's remaining reserves are costly to extract, and the industry benefits from generous tax incentives, often receiving more public funds than it contributes. Moreover, extracted gas is sold at international market rates, not discounted for UK consumers. Even exhaustive extraction would not reduce prices by a single penny.
Additionally, the North Sea's resources are nearly depleted, rendering this strategy ineffective. The potential wealth from past extraction could have funded a sovereign wealth fund, similar to Norway's, supporting long-term public needs. Instead, privatization under neoliberal policies allowed private companies to profit, leaving public benefits unrealized.
International Comparisons Highlight the Issue
Norway, which supplies 76% of the UK's gas imports, uses gas to set electricity prices only 1% of the time. The country generates 89% of its electricity from hydropower, with wind at 9% and fossil gas at a mere 0.9%. Norway's fossil fuel trade resembles Britain's historical opium trade—a harmful export to other nations. This contrast underscores how reliance on gas inflates UK prices.
Think tanks like the Institute of Economic Affairs have misrepresented this dynamic, claiming gas cannot be the primary driver of high UK electricity prices because it costs no more here than elsewhere. They note Norwegian industrial electricity is less than half the UK's price, failing to acknowledge Norway's minimal gas use in power generation.
Media and Political Misinformation
Recent statements, such as those from Claire Coutinho advocating for North Sea maximisation, ignore past acknowledgments of gas price spikes. As energy secretary, she previously highlighted over £100 billion in spending to shield households from gas price increases due to Russia's invasion of Ukraine, contradicting claims of resilience through fossil fuels.
Similar misinformation surfaced during the steel industry's struggles last year, with right-wing media blaming net zero policies. In reality, steel is largely exempt from environmental levies, and industry groups attribute price disparities to higher UK wholesale electricity costs driven by gas.
The Role of Green Levies
While households pay green charges, these account for a minor portion of bill increases compared to gas prices. Analysis by CarbonBrief indicates that green levies and network charges represent just 6% and 20% of the rise in bills since before the energy crisis, respectively, while wholesale prices driven by gas account for 53%. These charges fund investments in transitioning to a carbon-free grid, which will lead to lower future bills—a distinction often overlooked by critics focused on short-term costs.
Underlying Motives for Fossil Fuel Promotion
The persistence of such misleading claims stems from economic interests. Fossil fuels, with concentrated reserves controlled by licensed companies, generate high profits. In contrast, renewables like wind and sunshine are widely available, leading to lower profitability. Media owners and wealthy investors, many with stakes in fossil fuels, benefit from promoting these resources, blurring the line between lobbyists and the press. This dynamic prioritizes private gain over public interest, misleading the public on energy issues.
In summary, the surge in UK energy prices is not due to renewable energy but to the dominant role of fossil gas in setting electricity prices. Addressing this requires investment in storage and renewable infrastructure, not a return to costly and depleted North Sea extraction.
