Kemi Badenoch’s rejection of the 2050 net zero target her Conservative party put into law six years ago is, as they say, a shock but no surprise.
Not a day has passed this month without some version of the opposition leader’s argument appearing in the UK’s right-leaning newspapers. Readers are told regularly that “the highest industrial electricity bills in the world” (the Daily Express) are driving a manufacturing “massacre” (The Sun) thanks to a “lunatic stampede towards net zero” (the Daily Mail) that is “spreading like sepsis” (The Daily Telegraph).
It’s been like this since last year’s July election, which makes it a minor wonder that at least 80 per cent of the public still worries about climate change and supports renewables, though not as much as four years ago.
The government has ceded some ground to its critics. Ministers have launched a review of electric carmaking targets; backed Heathrow’s expansion and looked at cutting funding for the state-owned GB Energy company. Amid pressure to ramp up defence spending, the remit of a National Wealth Fund due to drive billions into green infrastructure has been changed so it can also invest in defence industries.
But one big anti-net zero argument should be resisted: the idea that renewables have driven sky-high electricity bills that will soar even more unless the government axes its plan for a clean power grid by 2030.
This claim seems persuasive because British industry indeed has some of the rich world’s highest electricity bills. International Energy Agency data shows recent prices have been more than three times those in the US, nearly double Japan’s, a third above Germany’s and more than double the OECD average.
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Household bills are also steep, despite a regulatory cap like those that spread across Europe after Russia’s 2022 invasion of Ukraine pushed up energy prices. It is also true that UK renewables have grown so much that wind was the biggest source of power generation for the first year ever in 2024.
But it is not true that renewables are the chief reason British bills have soared. Rather, it’s because the biggest and most variable component of those bills is the wholesale price of electricity and that price has long been disproportionately set by gas.
The UK market is based on a marginal pricing system, as are commodity markets worldwide, meaning the wholesale electricity price is set by the most expensive power station needed to meet demand. In the UK that’s typically gas plants, which have to buy fuel to burn, unlike wind and solar farms.
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Research shows gas set UK prices 98 per cent of the time in 2021 while the European average for fossil fuels was just 58 per cent. Several factors explain this, but the upshot is Britain has been unhelpfully exposed to international gas price shocks such as those following the invasion of Ukraine.
This is one reason why renewable generation costs have plummeted but power bills have not. The government aims to address this by boosting renewables and storage, thereby shrinking the amount of time prices are set by gas and pushing down wholesale prices, paving the way for cheaper bills.
The previous Conservative government shared this goal, and launched a review of the electricity market that has prompted multiple ideas for bringing bills down faster.
Imperial College London’s Professor Rob Gross has long favoured a scheme that would shift older renewables and nuclear plants off wholesale prices and on to long-term fixed price contracts like those used for newer green energy projects. Stonehaven consultant, Adam Bell, a former head of energy strategy in the energy department, says if gas is the problem then it should be removed from the market by nationalising gas plants or shifting them to a long-term pricing model.
Others think GB Energy should be able to buy and run green generators that bypass the wholesale market and sell more affordable power directly to consumers. Octopus Energy wants a zonal pricing system where different regions set prices based on local supply and demand.
Net zero sceptics say the answer is more nuclear, which is expensive, or more homegrown gas, assuming it could ever be extracted in volumes big enough to influence prices.
Each idea is contentious. Energy markets are complex. But anyone serious about cutting power bills and boosting British industry must grapple with these complexities. Simply attacking net zero is not nearly good enough.
pilita.clark@ft.com
Climate Capital
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