New research has pinpointed the primary driver behind the significant rise in UK household electricity costs over recent years. A comprehensive analysis by the UK Energy Research Centre (UKERC) concludes that wholesale gas prices are directly responsible for a staggering two-thirds of the increase in electricity bills recorded between 2021 and 2025.
The £169 Real-Terms Increase
The report details that typical annual electricity bills surged by approximately £169 in real terms during this four-year period. While network costs and government policy levies also contributed to the overall upward pressure on prices, the dominant factor remained the volatile wholesale gas market.
Disproportionate Influence of Gas on Pricing
This influence is particularly striking given the UK's energy mix. Despite gas-fired power stations accounting for only around one-third of total electricity generation, the pricing mechanism means that gas costs set the price for up to 90 per cent of generated electricity. This leaves millions of billpayers acutely vulnerable to international price shocks and market volatility, even as the grid incorporates more renewable sources.
Potential Savings from Renewable Energy Shift
The UKERC analysis proposes a significant policy intervention to mitigate future costs. It suggests that moving older renewable energy generators onto fixed-price contracts could yield substantial savings for the system, estimated at between £2 billion and £8 billion every year. Furthermore, the continued expansion of renewable capacity is projected to exert a downward pressure on wholesale electricity prices, potentially reducing them by around 8 per cent by the year 2029.
Managing the Transition and Protecting Consumers
The report also sounds a note of caution, highlighting critical areas that require careful management during the nation's energy transition. It underscores the urgent need for a widespread and effective rollout of smart meters to empower consumers with better data and control over their usage. Additionally, the study warns that the shift away from gas must be managed strategically to prevent disproportionately high costs from falling on vulnerable customers and to address future financial liabilities associated with the existing gas network infrastructure.
