What has driven all these costs so high? Many experts blame the high dependence of Britain’s electricity system on gas, which was used to generate 34pc of our electricity last year.
Gas is still used to set prices for all forms of electricity most of the time – and the price of it has surged following Russia’s invasion of Ukraine, which caused widespread supply chain upsets.
But the decision to “drive faster than anywhere else” on the rollout of renewables is also to blame, argues Malcolm Keay, a senior fellow and electricity market expert at the Oxford Institute for Energy Studies.
“The cost of renewables is folded into prices,” he says, through levies on bills. “It has required a lot of investment, and that investment is being paid for by consumers.”
Levies help underwrite the construction of new green power plants, while the cost of building new electricity pylons and miles of overhead wires to connect disparate wind and solar farms to the grid is also added to bills in the form of network charges.
Keay stresses that the cost of renewable power sources has come down gradually over time. But because many existing projects were built at higher historical costs and still receive subsidies, consumers are yet to feel this improvement – and will continue paying them off for years to come.
For example, the renewables obligation cost about £7bn in the 2023/24 financial year. Costs are expected to peak at £8.4bn in 2026/27, according to the Office for Budget Responsibility.
“We haven’t really had the benefit of renewables yet,” Keay adds.
As prices have risen, the UK’s poorest households have plunged into ever greater debt. Data from Ofgem shows that customer debt for power and gas bills combined rose from £2.6bn to £3.7bn between June 2023 and June 2024.
For many of the 4m households on pre-payment meters, this leads to de facto rationing in the form of self-disconnection. This is when households simply stop paying, meaning their electricity and gas stop working, leaving them in the cold and dark till they can afford to add some credit.
Ofgem data show that in the winter of 2022 about 280,000 households self-disconnected at least once and for longer than three hours – many for far longer.
Supporters of the Neso’s separate demand flexibility service, which is voluntary and compensates households for cutting consumption, say it is very different and is, in fact, a “win-win”.
But along with the introduction of “time of use” tariffs, which vary prices every half an hour based on demand, it heralds a new era in which households will need to become much more conscious of not just how much power they consume but also when they use it.
“As we’re going for more and more renewables, there’s going to have to be more flexibility somewhere else in the system, and demand flexibility is one possible source of it,” says Oxford’s Keay.
“Market reforms which might seem to lead to rationing or lower reliability are things that the Government has found very, very difficult to consider.
“But frankly, I think we’re inevitably going to go in that direction. And the issue is more about trying to find sensible ways of doing it that people can live with.”
‘Aggressive’ net zero goals
Is there an alternative? Some argue that Britain can shield households from crippling costs and blackouts more effectively by reforming electricity markets.
At the moment, the entire country falls under a single electricity price – despite the fact the grid is, in reality, made up of different regions that each have differing levels of generation and infrastructure.
Breaking up the single market to let each region set their own price would theoretically lead more wind and solar farms to be built closer to where they are needed – cutting the amount of new power lines needed and tackling bottlenecks more efficiently, according to supporters such as Octopus Energy.
Overall, this could cut bills for every household, stimulate more renewable construction and thereby address supply issues.
“Locational pricing makes it easier, by quite a margin, to get prices down for consumers,” FTI’s Mann says. “You are talking about £100 to £150 off bills per year.”
But regional pricing would mean accepting a politically risky situation where people in the South East still pay more for their power than those living elsewhere.
At the same time, the idea faces stiff opposition from wind farm developers that argue it will inject uncertainty into their business models and undermine investment.
Factory owners, represented by manufacturers’ body Make UK, are also concerned they could be “penalised” for owning plants in areas where prices are higher.
Making sure people can still consume the power they need for a reasonable price remains the overriding priority of the Government. But there is debate within the energy industry about whether racing towards the goal of clean power by 2030 helps or hinders that objective.
By shutting down fossil fuel-powered generators faster than we are ramping up the necessary capacity to replace them, Britain becomes more and more reliant on imports. That means we must pay the market price for our power.
