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John Redwood is an incisive commentator on economics and politics, writing his daily blog on www.johnredwoodsdiary.com. He has led two UK-based international industrial businesses, set up and sold on an investment management company and is a fellow of All Souls College, Oxford.
The Government tells us that UK electricity prices are amongst the highest in the world because our electricity is priced from gas-generated power on many days and this is now expensive. It claims that as we add more and more wind and solar to the grid, so the price of electricity will come down, replacing the dear gas-generated energy. This has not happened so far, with our electricity prices climbing as we add large amounts of new renewable power.
The Government’s explanation also leaves open the question of why it does not change the pricing arrangements if the cause is as it describes. The result of days of shortage of wind, when gas is a larger part of the mix and also pushes up the prices of every other type of generation, could presumably be adjusted by different pricing methods.
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How can I put this tactfully to the Government? It is likely to be dearer to rely on increasing amounts of renewable power when you have to allow for all the capital and running costs of a duplicate back-up system for when the wind does not blow. Whilst it is true that the costs of the gas fuel can be high when world markets are disrupted by wars, the costs of the wind farms do not stop with just the costs of putting in the turbines and blades.
The investor in new facilities would need to find the high up-front capital costs and the debt service. They would need to pay for maintenance and accept a shorter active life for the wind farm than for the gas power station. They would need to pay a gas power station to be on standby for days when the wind did not blow.
They would have to pay premium prices for the gas power when they did need to rely on a gas power station. The gas power station would have to charge more as it stands idle for long periods of time and so needs a higher price when it can run. By definition it is likely to run most when gas prices are dearest, as it runs when all else has failed in the system, leaving us short of energy.
It is true just building a new gas power station would also have a high capital cost and also have higher running costs as it needs to buy in gas. It is difficult for renewable power to be cheaper all the time there has to be a duplicate gas system on standby as well.
The extra costs for the country do not end with the issue of capital cost and running costs of the different generators. The renewables system needs considerably more grid capacity. Much of the wind power is generated many miles away from the electricity consumers, so the grid needs to be enlarged.
In order to keep the system balanced when more renewables are destabilising the grid, the operator needs to add expensive big investments to create inertia to avoid problems with system stability. It may need, as a cheaper answer, old gas power stations to keep spinning without the boiler. There are blackouts if the system is driven outside its safe power ranges.
It is true the country could move to battery or hydro storage of power, so the system can store electricity when there is plenty of wind and run down the stores when the wind drops. All this extra storage capacity has a capital cost.
There are losses of electricity from storage and issues about how much storage is needed. The technology of long-duration storage is still developing. A longish period of high pressure with little wind, especially in a cold winter with high demand for power, could stretch the system and would require major storage investment to be safe.
The Government, beneath the gas soundbites, is at last thinking through why the electricity price climbs as more renewables are added, and why there are new concerns about system stability. The Chancellor has said it makes no sense to add more renewables all the time there is a shortage of grid capacity to send the power to the customers. The energy minister has confirmed there is too much wind electricity generated in Scotland much of the time, leading the system to have to pay large sums to wind producers not to produce.
It also has to pay large sums to gas generators in southern England, where more of the power is needed, to switch on to see them over surges in demand or during periods of low wind. Data [ [link removed] ] from the National Energy System Operator (NESO), confirmed that, in 2024-25, £1.5bn was paid to level out wind and gas power to get the electricity to the right place. Some forecast this sum surging to £8bn by 2030 as we become more dependent on wind.
The grid lacks pylons and power lines to bring enough of the Scottish power south. It also needs to add inertia to its system to keep it stable, which requires investment in synchronous condensers and grid-forming inverters.
In the second quarter of 2026 the electricity supplied cost £333 out of a total bill of £875 for a typical household, according to Ofgem [ [link removed] ]. Transmission of the power and distribution to the home cost £199. The costs of balancing renewables and gas were £42 and the costs of low-carbon policies were £56. VAT added £42 and company profit £22. Other costs accounted for the rest.
This reveals that the UK has chosen an expensive way of planning its energy transition. It still has an ageing grid with the need for updating to handle the renewables and to cope with higher overall demand. This will prove costly and may add another £200 to bills by 2030 if the work proceeds in a timely way.
The UK has also unwisely decided to run down its own gas supplies, preventing new exploration and delaying production of proven reserves. As a result it has to import more liquefied natural gas (LNG) when it needs more gas to fuel its power stations. At times of world market stress and shortage this is particularly expensive.
LNG is always likely to be dearer than piped gas from a local field owing to all the additional costs – and CO2generation – from liquefying, cooling, transport and regasifying the product. More local gas could be secured under long-term contracts with some smoothing of spot price market volatility.
Ministers are desperately looking at all the items on a household bill to see what more they could do to try to reverse the remorseless upwards trend. They have been transferring some policy costs of transition to general taxation and have now begun to think about limiting the rise in payments to wind farms to abate their output.
This in turn leads to large extra spending on grid improvement and expansion. There is a particular pinch point in getting excess wind energy out of Scotland heading south to the large markets of London and the south-east. Meanwhile, previous generous guaranteed prices for wind and solar power keep average costs high and have led to the Electricity Generator Levy on generators earning exceptional revenues from high wholesale prices.
The price of domestic electricity is four times the price of gas based on the cost per kilowatt hour. Advocates of heat pumps say that their much greater efficiency can remove the cost disadvantage. It does not remove most of it for electric heaters compared to gas boilers to heat a home. This has made people reluctant to switch from gas central heating to electricity, which in turn has avoided a big additional build-up in power demand which the present electricity system could not accommodate without more grid.
All the renewables come at a high total cost and will be dearer than the older fossil-fuel generators, which have to close their plants prematurely. All these renewables also come with CO2 produced in the making of the turbines, solar panels and the shipping to bring them to the UK.
It is good to see the Government rethinking the speed and nature of the energy transition. It is learning the hard way that some of the policies adopted in the name of net zero increase world CO2 output, whilst failing to lower UK electricity prices. It also needs to be concerned about the loss of supply security with increasing dependence on imports and with grid management issues with so much renewable interruptible power in the mix. Keeping the lights on should be its first duty.
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