UK Energy Prices Are Down, But Consumers Still Face Higher Bills

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At present, almost all the costs of supporting renewables and other low-carbon programs are recovered through electricity bills rather than gas. Analysis by Nesta shows that policy costs now make up just under one-fifth of the average power bill but only around 7% of a gas bill, a distortion that makes electricity disproportionately expensive.

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Reeves has already said she will take action to deal with the financial squeeze average Britons are feeling in preparation for her budget announcement on Nov. 26. The chancellor is looking at a range of options to help reduce the cost of energy bills, including potential tweaks to tax and climate levies, according to a person familiar with the matter. Reeves wants to ensure any changes are progressive, rather than solely removing VAT from energy bills, which would benefit wealthy people most as they tend to consume more energy, they said.

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Britain’s household energy debt has ballooned to over £4.4 billion, from just £1.8 billion four years ago, as a growing number of Britons struggled to pay their bills after gas and power prices soared to historically high levels in 2022.

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How Britain stacks up 

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Across Europe, other governments are also risking voter anger as they ask citizens to help pay for decarbonization. In Germany, energy bills remain a strain: about 4.2 million people — roughly 5% of the population — were behind on electricity or gas payments in 2024, according to the federal statistics office.

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Household power prices have fallen since 2023, but far less than wholesale rates. Wholesale electricity prices dropped 36% over the past two years, while consumer prices fell only 16%, data from energy lobby group BDEW show. Taxes and grid charges now make up a larger share of bills, with network fees rising 47% since 2020, according to Verivox.

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The biggest obstacle is geography. Most wind farms sit in the windy north, while energy-hungry industries cluster in the west and south. That mismatch demands massive grid expansion — including Germany’s largest transmission line, now under construction, stretching more than 700 kilometers (435 miles) across the country.

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Consumers will ultimately foot the bill. Grid-related charges are set to climb about 22% by 2030, according to Agora Energiewende. To cushion the blow, the government plans to subsidize grid fees with €6.5 billion next year, trimming household costs by an average 6%, Verivox estimates. Similar support is expected through 2029.

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France stands apart in Europe. Its large nuclear fleet has helped keep wholesale power prices among the lowest in the region, roughly €30 per megawatt-hour cheaper on average than in the UK or Germany. It is adding renewables and upgrading its grid, but on a smaller scale. France’s highest-level grid infrastructure needs fewer major upgrades because nuclear and hydro generation are already spread across the country, according to Jonathan Hoare, research associate at Aurora Energy Research. 

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Over the long-term, the logic behind the UK’s transition remains intact: A system dominated by renewables should, eventually, be cheaper and less exposed to global markets than one reliant on gas. National Grid Chief Executive John Pettigrew said the grid investments now under way are essential to keeping the system reliable and affordable in the years ahead. 

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Yet the demand side has to keep up. Rachel Fletcher, director for regulation and economics at Octopus Energy, said that investment needs to shift toward electrifying homes and transport, arguing that policymakers have focused too heavily on supply.

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“Fundamentally, what is driving up bills is that we are prioritizing building stuff over thinking about whether there are any other ways and other things that we could do to decarbonize our electricity use, which might be cheaper and require fewer new assets in the ground,” she said. 

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—With assistance from Ellen Milligan and Victoria Cagol.

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