Hi, I’m Rachel Millard, the FT’s clean energy correspondent, and today I’m tackling the thorny topic of Britain’s energy bills — why are they so high, and what’s the government going to do about it?
The energy challenge ahead for Labour
Liz Truss stood up in the House of Commons on September 8 2022 to announce a £150bn plan to subsidise household energy bills.
The then prime minister’s plan followed warnings that bills would climb above £4,000 a year that winter as wholesale gas prices leapt following Russia’s invasion of Ukraine. The increase added to a pricing surge that started in late 2021 as countries reopened following the pandemic. (Truss’s plan was quickly overshadowed by news on the same day of the death of Queen Elizabeth II, and support was ultimately scaled back to a cost of around £44bn amid concern about government spending.)
More than three years later, chancellor Rachel Reeves faces a less acute challenge, but she still needs to act. Wholesale gas prices have fallen back from crisis levels but are still higher than before 2021. The other costs that make up the final bill that households pay, such as costs to pay for network upgrades and policies including subsidies for renewable energy, are also higher.
It means that typical household bills are hundreds of pounds higher than before 2021. Household energy arrears (debts where there is no arrangement to pay) have reached record levels of £3.2bn, raising alarm in the industry and the attention of the regulator and consumer groups.
Energy bills are a particularly acute issue for Labour. During last year’s general election campaigning, it promised Britain would get most of its electricity from wind farms and solar panels by 2030, which it claims would reduce household bills by up to £300.
Since Labour took office, the price cap — which sets typical dual-fuel (gas and electricity) household bills — has climbed by £187 to £1,755. Cornwall Insight, the consultancy, estimates this figure will rise to £1,825 by April, just before crucial local elections that are predicted to be dire for Labour.
Unwise pledge
Many critics believe the £300 bills pledge was unwise, given the difficulty of meeting it. EDF UK estimates that the price cap will reach £1,970 in 2030 (in nominal terms, broadly flat in real terms).
More wind and solar farms are likely to push down the wholesale price of electricity, as they compete with other power stations that have higher running costs to meet power demand each day.
But industry executives and experts say any decreases in wholesale costs are likely to be offset by increases over the period in other costs that feed into final bills, such as electricity network upgrades, subsidies for wind and solar stations, and payments to keep gas-fired power plants on standby.
Ofgem, the energy regulator, says electricity network owners could invest as much as £80bn by 2031 to reinforce existing lines as well as develop new cables, particularly to bring electricity from windy northern Scotland to areas further south. EDF UK’s analysis suggests that the costs of building and maintaining the network, as well as balancing electricity supply and demand day by day, are on course to rise by £104 per typical household by 2030.
Meanwhile, household electricity bill payers are set to be charged levies to fund no fewer than 11 different government schemes in the coming years, according to analysis by Octopus Energy, Britain’s largest household energy retailer.
These include the legacy “renewables obligation” scheme to subsidise older wind farms and solar farms; other subsidies for green energy; the new Sizewell C nuclear power plant; funding discounts on electricity bills for big businesses; payments to gas-fired power stations to remain on standby despite running less of the time; and compensation for households living near new electricity pylons.
“Building homegrown sources of energy is crucial to improving our energy security and better insulating ourselves from large swings in international energy prices,” Josh Buckland, director of strategy and policy at EDF UK, wrote in a blog for the company. “However, the wholesale price of energy is only half (38 per cent based on the current price cap) of the story.”
Cornwall Insight estimates that such non-wholesale costs will account for 60 per cent of the typical energy bill. “While it is the wholesale element that provides the volatility in bills, the non-wholesale element risks becoming a core cost element over which the government may not have material influence,” said Dr Craig Lowrey, principal analyst at Cornwall Insight.
The levies are charged to electricity bills rather than gas bills as they generally involve funding changes to the electricity system, including efforts to make it greener. But that causes problems for the other side of the shift to greener electricity: getting households to ditch their gas-fired boilers and petrol cars for electric models.
Policy costs
The policy costs are one reason why British households pay much more per unit for electricity than they do for gas, eroding the efficiency benefits of heat pumps and discouraging households from switching.
So what can the government do? The networks need upgrading, while most of the policy costs fund payments under long-term contracts. In general, the costs can be moved into taxation or on to gas instead of electricity bills, but not eliminated altogether. Both options are unappealing.
More than 60 companies, trade groups and citizens’ advocates are lobbying the chancellor to remove some of the levies on electricity bills — but their request does not say where the costs should go. “Levies on electricity are a handbrake on electrification,” they said.
The chancellor is drawing up plans to cut VAT from both gas and electricity bills and potentially cut some levies to pay for energy efficiency improvements. But the VAT cut would cost up to £2.6bn, which Cornwall Insight warned would “have to be offset through other, broader tax increases” — and there are questions over whether it would be fully passed on.
Meanwhile, Citizens Advice, the consumer watchdog, has warned that cuts to energy efficiency measures would “risk trapping people in a cycle of paying over the odds” to heat their homes.
“Before winter’s even hit, people are coming to us for support because they can only afford to heat one room, are wearing gloves inside to stay warm, and have damp and mould creeping up the walls,” said Gillian Cooper, director of energy at Citizens Advice, who urges the government to “look for savings elsewhere”.
The government has started making other changes ahead of the Budget, announcing last month a proposal to peg subsidies to wind and solar farms to the lower inflation index under the costly renewables obligation scheme.
Officials say indexing the scheme to RPI has “overcompensated” generators and that pegging it to the lower CPI rate could save consumers around £80mn in the financial year if implemented in April 2026. The scheme cost £6.7bn in 2023-24.
But Greencoat UK Wind, a UK wind developer, has warned changes to the renewables obligation scheme could backfire by increasing green energy investors’ concerns over the risks of doing business in Britain, highlighting the complicated decisions for the government.
“Investors have made good-faith investments into UK renewable energy projects based on stable government-backed, inflation-linked support,” Greencoat said this week.
Charts by Martin Stabe
Britain in numbers
Britain’s electricity grids have been under strain for years from a surge in applications from new wind and solar farms wanting to connect to the electricity grid so they can sell their output.
But now grids are also deluged with applications from companies wanting to connect to draw electricity — data centres in particular.
The queue for demand connections has climbed from 48GW in May 2024 to 125GW in June 2025, according to data from the Energy Networks Association.
Ofgem, Britain’s energy regulator, says the queue includes some “less viable” data centre projects, which it warns could crowd out the more serious ones.
“The presence of unviable projects in the demand queue risks misallocating resources and undermining network planning, ultimately creating inefficiency across the electricity system,” it warned this month.
“If left unaddressed, this could delay timely connections for viable projects, erode confidence in the connections process and delay the realisation of benefits across Great Britain.”
UK Prime Minister Sir Keir Starmer wants to encourage data centres to set up in Britain to help “shape the AI revolution”.
But the surge in demand for grid connections indicates practical hurdles ahead.
“Networks are working hand in hand with industry, government and the regulator to enable fair and faster connections,” said David Boyer, director of electricity systems at ENA.
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