Two thirds of household power bill rises due to wholesale gas costs – analysis

Two thirds of electricity bill rises that have hit households in the past few years have been down to wholesale gas prices, analysis has found.

The assessment by independent analysts at the UK Energy Research Centre (UKERC) said that typical electricity bills rose by £169 in real terms between 2021 and 2025, a period in which energy prices soared in the wake of Russia’s invasion of Ukraine.

Energy prices have eased since the height of the energy crisis in 2022-23, but pressure is still on the Government to tackle high bills, with claims from some political opponents that “net zero” policies to cut fossil fuel use are costing consumers.

The UKERC analysis found that increased wholesale gas prices caused 66% of the increase between 2021 and 2025, while rising network costs were responsible for 17% of the increase and 13% was down to policy costs such as paying for renewables.

Despite gas only accounting for a third of electricity generation, many other power generators receive payments linked to the price of gas, with the UKERC analysis estimating that gas prices drive the cost of electricity for up to 90% of generation – and exposing billpayers to gas price shocks.

This will change, the assessment said, as more renewables projects such as offshore wind farms come online with their prices fixed under the “contracts for difference” (CfD) scheme, with gas expected to set the price of electricity only 60% of the time within three years.

That is set to reduce wholesale electricity prices by around 8% by 2029, the analysis suggests.

In last year’s budget, the Government moved to cut bills by around £150 a year on average by scrapping a flagship energy efficiency programme that levied costs on consumer bills and moving the cost of older renewables subsidies off bills and into general taxation – which will help households from April.

But the UKERC said the Government – and consumers – could save further by shifting older renewable generators, whose subsidies are paid on top of the wholesale cost of electricity, on to the fixed price CfD regime.

That could save between £2 billion and £8 billion a year in the late 2020s, benefiting the Treasury, households and commercial customers, the study said.

‘Awkward’

UKERC director Professor Rob Gross said: “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.

“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.”

The UKERC’s annual review of energy policy also warns that action is needed to roll out smart meters and half-hourly metering so that consumers can get cost savings from flexible tariffs for electric car charging, heat pumps and smart appliances.

And it warns that the shift away from gas must be managed, to prevent high costs for vulnerable customers left on the gas network as other households move to clean heating and cooking and consumption falls.

Currently £4 billion of capital investment costs for the gas network are set to be recovered from customers after 2050, when net zero plans would mean there are no customers left on the network, while disconnecting customers and making the network safe for abandonment will cost billions more.

The state “will have to bail out the gas industry in one form or another”, the report warns, calling for a wide-ranging debate on the future of the network and suggesting options including paring back investment, a planned area-by-area approach to retirement and even nationalisation.