Wholesale gas prices have been identified as the primary driver behind the substantial increases in household electricity bills across the United Kingdom in recent years, according to fresh analysis from independent energy experts. The comprehensive assessment reveals the extent to which volatile global gas markets continue to dictate energy costs for British consumers, even as the nation progresses with its transition towards renewable sources.
The Dominant Role of Gas in Electricity Pricing
The detailed study conducted by analysts at the UK Energy Research Centre (UKERC) has uncovered that typical electricity bills surged by a significant £169 in real terms during the period between 2021 and 2025. This timeframe coincided with the dramatic escalation of energy costs following Russia's invasion of Ukraine, which sent shockwaves through global energy markets.
The UKERC analysis attributes a substantial 66 per cent of this increase directly to heightened wholesale gas prices. This finding is particularly striking given that gas accounts for only approximately one-third of electricity generation within the UK. However, due to the structure of the energy market, gas prices are estimated to influence the cost of electricity for up to 90 per cent of generation, leaving billpayers acutely exposed to fluctuations in gas markets.
Additional Factors Contributing to Bill Increases
Beyond the dominant influence of gas prices, the assessment identifies other significant contributors to rising electricity costs. Approximately 17 per cent of the increase between 2021 and 2025 is linked to escalating network costs, while 13 per cent stems from various policy costs. These policy costs include initiatives designed to support the expansion of renewable energy infrastructure across the country.
This breakdown comes amid ongoing political debates regarding the impact of 'net zero' policies on consumer bills, with some opponents arguing that measures aimed at reducing fossil fuel usage are placing undue financial burdens on households.
Government Measures and Future Projections
While energy prices have somewhat stabilised since the peak of the 2022-23 crisis, the government continues to face considerable pressure regarding persistently high bills. In response to these challenges, last year's budget included measures intended to reduce average annual bills by approximately £150. This was achieved through scrapping a flagship energy efficiency programme that levied costs directly on consumer bills and moving the expense of older renewable energy subsidies from bills into general taxation, with these changes taking effect from April.
The UKERC analysis suggests that the situation is poised to improve as more renewable energy projects, particularly offshore wind farms, become operational. These projects benefit from fixed prices under the "contracts for difference" (CfD) scheme, which is expected to reduce the influence of gas on electricity pricing. Within three years, gas is projected to set electricity prices only 60 per cent of the time, rather than the current overwhelming influence.
Potential Savings and Policy Recommendations
According to the assessment, this shift towards renewable energy with fixed pricing could reduce wholesale electricity prices by around 8 per cent by 2029. Furthermore, the UKERC proposes that the government could achieve additional savings by transitioning older renewable generators onto the fixed price CfD regime. Currently, these generators receive subsidies that are paid on top of the wholesale cost of electricity.
Implementing this change could generate savings between £2 billion and £8 billion annually in the late 2020s, benefiting the Treasury, households, and commercial customers alike. Professor Rob Gross, director of UKERC, commented: "We are at an awkward moment in the UK energy transition. Unpredictable global gas prices still dominate our power market, even as policies drive the rollout of renewable and nuclear projects that will deliver stable prices in the long run."
Professor Gross further explained: "Government is rightly committed to reduce reliance on volatile fossil fuels. UKERC is seeking options to accelerate the benefits, which is why we argue for a new contract for older renewables. Like a fixed-price mortgage, this can help provide predictable prices for households and business alike."
Broader Energy Policy Challenges
The UKERC's annual review of energy policy highlights several additional challenges that require attention. The report emphasises the need for accelerated rollout of smart meters and half-hourly metering systems. These technologies would enable consumers to benefit from flexible tariffs for electric vehicle charging, heat pumps, and smart appliances, potentially delivering significant cost savings.
Furthermore, the assessment warns that the transition away from gas must be carefully managed to prevent disproportionately high costs for vulnerable customers who remain connected to the gas network as other households adopt cleaner heating and cooking solutions. As consumption declines, maintaining the gas network becomes increasingly expensive per remaining customer.
The report reveals that approximately £4 billion of capital investment costs for the gas network are scheduled to be recovered from customers after 2050. By this date, net zero plans anticipate no customers remaining on the network, creating a significant financial challenge. Disconnecting remaining customers and making the network safe for abandonment could cost billions of pounds more.
The UKERC assessment concludes that the state "will have to bail out the gas industry in one form or another" and calls for a comprehensive public debate regarding the future of the gas network. Suggested options include reducing investment, implementing a planned area-by-area approach to network retirement, and even considering nationalisation of certain aspects of the gas infrastructure.
