Is Britain’s net-zero push to blame for its high energy prices?

For a while, Britain’s green consensus looked ironclad. Through the 2010s and into the early 2020s, the Conservatives and Labour fought over who was keener to decarbonise the country. The public seemed eager too, so long as wind turbines wouldn’t spoil their view. Among the few decisive acts of Labour’s scattershot first year in government was an ambitious plan to turn the electricity grid green by 2030, half a decade ahead of the Tory target and speedier than any other big country.

That harmony has shattered. The Tories now call the climate targets they came up with “impossible”. Reform UK, which wants to scrap green subsidies, is ahead in the polls. Sir Tony Blair, a former Labour prime minister, has warned that Britain’s climate strategy is “doomed to fail”.

Behind the angst is a brutal fact: British electricity prices have become expensive. For decades, those prices rarely strayed far from the rest of Europe’s. Now household bills are 20% above the average for the major European economies, and industrial bills 90% higher (see chart 1). The gap with America is starker yet.

Britain’s woes began when natural-gas prices spiked after Russia invaded Ukraine. That put up electricity costs across Europe, but Britain was hit hard. Since it pushed coal off the grid in the 2010s, gas (as the marginal producer) has almost always set the electricity price (see chart 2). In France, nuclear is usually the price-setter; in Germany it is often coal; in some countries hydroelectric dominates. Wind and solar seldom do: their output varies too much with the weather and grids usually need at least some baseload power from elsewhere.

Meanwhile, Britain’s clean-power push has started to land on bills. Paying for the new pylons and wires that will stitch together a more complex grid where power is generated in pockets all over the country is driving up network costs. So are “balancing costs”, whereby generators are paid to smooth out the volatility of renewables. The Renewables Obligation, a subsidy scheme scrapped in the mid-2010s but with payments running into the late 2030s, makes up over a tenth of the average bill.

Since 2019 green subsidies and network costs (including some new expenses unrelated to the clean-power push) have contributed about two-thirds as much to the real-terms rise in bills as the wholesale price of electricity has (see chart 3). Both are set to keep rising. And carbon prices paid by gas generators account for a quarter of that wholesale cost, a share which may increase once Britain links its emissions-trading scheme with Europe’s more expensive one.

Unfortunately, Britain has also been forced—by geographical misfortune and regulatory folly—to lean on offshore wind, a costlier sort of zero-carbon power, as the backbone of its revamped grid. Solar panels are getting spectacularly cheap, transforming the economics of energy in hotter parts of the world. But Britain gets less sun and uses most energy in winter, when sunlight is scarcest. Overzealous regulation means that costs and timelines for nuclear power plants have spiralled. Onshore wind often means a fierce battle with development-resisting NIMBYs.

The trouble is that offshore wind has stopped getting cheaper. Solar cells, which are modular and built in factories, seem still to be falling in price with mass production. But offshore turbines, as tall as skyscrapers, are more like civil-engineering projects. Bigger turbines are more efficient, but tougher to transport and install.

Britain procures offshore wind, like other renewables, through “contracts for difference” (CfDs). Under this scheme, the government promises electricity suppliers a fixed price, rising with inflation, for 15 years (soon 20). If prevailing prices are lower, the government pays the difference; if higher, generators pay the government.

The cheapest CfD auction round for offshore wind came in 2022. The round after that, in 2023, had no bidders; the government set its price ceiling too low. Prices rose in the 2024 auction. The 2025 round comes in August, and the price ceiling is higher still (see chart 4). One hope for the CfD scheme was that creating a reliable pipeline of projects would push costs down before the bulk of the buildout came. That worked at first, but progress has stalled and now Britain needs to buy a lot of offshore wind, fast, to meet its clean-power goals.

A perk of CfDs is that they lock in prices, so future gas spikes will hurt less. But those locked-in prices are not low. One megawatt-hour of offshore wind from the last round costs a few percent more than one from Britain’s existing gas fleet, even at today’s still-high gas prices. August’s round will fix prices into the late-2040s.

All this makes the politics of grid-greening perilous. Ed Miliband, the energy secretary, says average annual electricity bills should fall by £300 ($400) by 2030. Without a drop in gas prices, they seem more likely to rise. For now, decarbonisation is popular, and blaming Vladimir Putin for high prices still works. But that backing looks fragile. Polling by More in Common for The Economist suggests that energy bills are the single most important measure voters will use when deciding whether to re-elect Labour. Enthusiasm for climate action in surveys tapers off quickly if it costs even tens of pounds extra per month.

High bills have squeezed Britons’ finances. Are they crimping growth? Output of energy-guzzling goods like chemicals, plastics and metals has fallen by more than 20% since gas prices first spiked. The government wants to subsidise power for those sectors, but that just moves the cost elsewhere. Energy flows into everything, even the services that dominate Britain’s economy. References to energy costs in corporate reports and earnings calls have more than tripled since 2019, driven by the consumer, tech and financial sectors.

No big country is as rich as Britain while using so little energy per head. Revving up GDP growth without more power—a challenging prospect until more fresh baseload like extra nuclear or battery storage lands in the late 2030s—may be possible, but is uncharted terrain.

These days, Britain’s carbon emissions are not far off a global rounding error. By phasing out coal so quickly, Britain has also already cut emissions by more than just about any rich country. The bet behind today’s clean-power push is that Britain can be a trailblazer, and show how to painlessly decarbonise the grid even without much cheap solar power. But taking that prospect seriously also means entertaining the opposite risk. A botched transition would be not a model but a warning. ■