Thursday briefing: Will the government reform the system to bring down our energy bills?

Why are Britain’s energy bills so high? And, what can be done to reduce them? The typical annual bill for household gas and electricity use will soon be a wallet-straining £1,723. Miatta Fahnbulleh, net zero secretary, worked valiantly during a media blitz yesterday to repeat early promises to help families out—the £2 cap on bus fares, action on free school meals—but the evidence is inarguable: British households are still paying more for power than many other European nations. A typical energy bill includes a standing charge, a fee to keep connected to the grid, and a unit rate for consumption. Britain has one of the most expensive energy markets in the world, driven by the marginal pricing system, where the price is dictated by the most expensive source of generation required to meet demand. In the UK, this is regularly electricity from costly gas-fired power plants, which set prices over 90% of the time. Last year, 31% of UK electricity was produced from burning natural gas, but it is estimated to have set electricity prices over 90% of the time. Energy costs diverged from other European nations around 2020, when Britain ended its reliance on coal, which was responsible for 43% of UK supply as recently as 2012. Global gas prices surged due to wars in Ukraine and the Middle East, further hitting British bill-payers. Experts warn that no single lever can be pulled to bring down prices without consequence. Short-term solutions include cutting levies (saving £100 a year), addressing energy debt (saving up to £70 a year), and implementing reactive pricing. Longer-term fixes involve redesigning the market (saving up to £270 a year by 2030), controlling the Crown Estate’s seabed leasing, and decoupling gas and electricity pricing (saving £65 a year). The debate remains contentious, with advocates like Greg Jackson arguing for zonal pricing, while critics warn it could disrupt renewable energy plans. The government is exploring further measures to ease the burden on households.