Why Are Electricity Prices So High?–Dieter Helm

By Paul Homewood

Why is the price of electricity so high? It’s a puzzle, because successive politicians (Blair, Cameron, May, Johnson and now Starmer and Miliband) and lots of lobbyists have told us we should have expected quite the opposite: cheap energy, to be achieved by getting out of fossil fuels. First exit coal, then bear down on gas, and a new era of cheap wind and solar would give the UK low absolute and relative electricity prices. It would not quite be “too cheap to measure”, as civil nuclear was once expected to be, but cheap enough to make the UK a “clean-energy powerhouse”, where the energy-intensive industries of the world would be flocking to in order to gain this great competitive advantage. Sadly, miracles probably don’t happen, and it is wise to be wary of politicians promising them.

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Helm confirms what I have been saying lately about real gas prices:

The gas price started to rise well before the Russian invasion of Ukraine, as the numerous impacts of the pandemic lockdowns unwound and as world transport and world trade began to normalise. Putting this aside, the blowing up of the Nord Stream pipelines, and the sharp reduction on Russian gas coming into the European market, obviously had a big effect, and one that would take until late 2024 to start to fully unwind. By mid-2025, the European gas price is back at or below its five- and ten-year averages in real terms. It was a classic short-term shock, reminiscent of the oil price shock in 1990 caused by the first Gulf War and, as then, one mistaken for a long-term trend.

He concludes:

It is hard to conclude other than that the Secretary of State is deluded when he champions the 2030 net zero target as a route to lower costs of energy through ever-cheaper renewables. Rather, it reflects a conclusion seeking a cost measure that confirms it.

The correct measure is system costs. The reality is that net zero by 2030 is expensive and that by dashing flat-out towards it, the result will be even higher costs. That points to an even more challenging reality: it is going to be expensive to decarbonise carbon consumption, and it is a delusion to think that having for so long not been paying the cost of the pollution our consumption is causing, by now paying for pollution, it is going to be all win–win. The price is not coming down, as heralded by the Secretary of State. It is going up, with a system requiring twice the generating capacity and much more transmission, lots of batteries and storage, and a great deal of back-up generation to keep the lights on, all to achieve the same amount of electricity. To think otherwise is to commit the broken windows fallacy – that by breaking windows, economic growth is increased. Replacing one set of windows with another is a net cost, and replacing the windows with more glass than was previously needed is a bigger cost still.

It is time to be honest about the costs of the net zero target.