Britain is once again paying the price of an energy system that is more effective at extracting profits than delivering security, as illegal war and geopolitical disruption send fossil fuel prices soaring. Because the UK electricity market turns volatile gas prices into higher electricity bills, families risk paying the cost. The government's instinct has been to double down on clean power, which has strong merit, but understanding that strategy's limits shows why deeper reform is urgently necessary.
The government's goal is to achieve stable prices by removing gas from the grid. Britain's electricity market uses a marginal pricing system, meaning the price paid for all electricity at any moment is set by the most expensive source needed to meet demand. Even though gas produces only about a quarter of UK electricity, it sets the price around 85% of the time. This means that even when renewables are generating most of the country's power, bills do not reflect the cost of solar or wind. Because gas is a global commodity, the closing of the Strait of Hormuz translates into rising electricity bills in Hull.
Ed Miliband knows this, hence his strategy to flood the grid with renewables and ultimately break the link between gas prices and electricity bills. Grid decarbonisation insulates Britain from fluctuations in global gas markets. However, if the aim is to protect households and reduce the overall cost of the transition, it is not enough. The price of electricity turns not just on what technology powers the grid, but on the architecture of the energy system itself – who owns it, how it is financed, and how the market is designed.
Expanding renewables will push the majority of gas off the system over time, but the speed and scale required to meaningfully reduce wholesale prices are significant. Until gas is genuinely marginal, it will continue to set the price much of the time. This is a decade-long problem, not a near-term fix. The immediate solution is to reform a market where gas sets the price for everyone. The government should move legacy renewables and nuclear into a single-buyer model, with Neso as sole purchaser, while placing gas plants in a strategic reserve. Generators would receive stable fixed prices, but gas would lose its price-setting function, eliminating windfall profits for non-gas generators. Spain and Portugal demonstrated this principle in 2022, decoupling electricity prices from gas and sharply reducing bills.
Ending a dysfunctional pricing mechanism still leaves a second problem: the cost of financing the transition itself. Decarbonising electricity requires hundreds of billions of pounds in new generation and network infrastructure. When that investment is privately financed, households pay a premium that would not exist with direct public investment. Compounded over the decades-long lifetime of new clean energy assets, the extra financing cost of private capital alone could run into the hundreds of billions. This is the privatisation premium in action – the elevated price consumers are forced to pay when essential investment is privatised. We might decarbonise the grid, but bills would be higher than necessary, and the upward redistribution of income from bill payers to investors would continue.
