Why are energy bills rising and what can we do about it?
We share our recommendations with government
Energy bills are going up again this week. A typical household now pays around £1,663 a year — that’s 46% more than in 2019 — turning what was once a predictable monthly cost into a genuine affordability crisis. Energy debt is growing fast, and is on track to top £5 billion.
At the same time, British businesses are stuck paying some of the highest electricity costs in Europe — pushing up the price of everything they make and harming their profitability.
So why are bills still so high when more than half of Britain’s electricity now comes from renewables? And what can actually be done about it?
In this article, we look at why the price cap is rising again this July, why renewable power costs remain so tightly bound to the price of gas, and our recommendations to government for breaking that link for good.
Why are energy bills rising this July?
Energy bills are going up by 13% this July — the biggest increase in years. And the main reason is because wholesale gas prices have shot up due to the ongoing conflict in the Middle East.
So why is this happening now when the war started back in April? It’s down to timing. The price cap for April to June was locked in before the conflict pushed wholesale prices up. It also benefitted from additional savings from the Autumn budget when some taxes were shifted out of bills. Now, these higher wholesale costs are being passed onto customers as the new cap kicks in.
Are high energy bills caused by renewable energy?
When energy bills rise, renewable energy is often blamed. But is that fair?
Renewables are now generating more than half of the UK’s electricity, up from 6.5% fifteen years ago. Wind and solar are among the cheapest forms of power generation available. Yet homes and businesses aren’t seeing the full benefit of that low-cost, homegrown energy.
This is because gas still sets the price of electricity most of the time. Even when renewable generators are producing much of the country’s power, wholesale electricity prices remain heavily influenced by gas markets. That means events thousands of miles away can still have a direct impact on bills here at home.
The result is a system that often fails to reflect the lower cost of the renewable energy being generated in the UK. It’s like growing your own food but still being charged restaurant prices to eat it.
That’s not just a problem for our energy bills. High electricity costs increase operating costs for businesses, make British industry less competitive and ultimately feed through into the prices we all pay for the products we buy and the services we receive too.
How can government solve this?
We’ve just published a detailed report with our recommendations to government to lower British energy bills for good. Here are some of the headlines.
Reduce energy bills before winter
In our new report, we suggest moving the remaining policy costs off energy bills and into general taxes, to save the average home around £76 a year. This could be done before this winter.
These costs already exist – the question is simply whether they’re paid through energy bills or through the tax system.
We also suggest increasing targeted support for households that need it most, to make their energy more affordable again and support them out of fuel poverty.
Break the link between electricity and gas prices
Short-term savings matter. But they won’t solve the underlying issue. In our report, we argue that reforming the energy market must be the next step.
The biggest opportunity is to ‘break the link’ between gas and electricity prices. The government have recently announced a policy they believe will achieve this, but external analysis suggests the impact will be limited and could even end up costing people more money. Our proposals genuinely remove gas from the wholesale market and ensure it operates only when it’s needed to balance the system.
In simple terms, it means electricity prices would be driven much more by the lower cost of generating renewable power in Britain, and much less by the price of gas on international markets. It would also supercharge the cleaning of our electricity grid, as those gas power stations would run mless often.
Our report also highlights the importance of reducing the cost of financing new clean energy infrastructure. The cheaper it is to build renewable energy, the cheaper the electricity it produces can be over the long term.
What impact would these changes have on my bills?
Taken together with measures implemented following last year’s budget, our data shows that energy bills could be reduced by around £272 a year for a typical home. And for the households that are most in need, it could lead to savings of around £572 a year.
The impact wouldn’t stop there.
Lower energy costs would also help businesses manage one of their biggest overheads – high energy prices. Energy costs affect inflation, business investment, public services and economic growth. Lowering them has benefits that spread throughout the wider economy, in addition to lowering government spending on public services (such as energy for schools, hospitals and council buildings) and debt.
Put simply – this proposal would save more money than it costs to put in place.
How can I lower my energy bills now?
If you are worried about your bills right now, there are steps you can take immediately. If you’re on a default or variable tariff, it is worth checking whether switching to a fixed tariff could offer more certainty over the months ahead. There might also be ways you could save energy at home, like using a dehumidifier instead of the tumble drier, or choosing A rated appliances.
And for homeowners, technologies like solar panels, batteries and heat pumps can reduce your exposure to energy price rises while helping cut carbon emissions. Many installers provide finance packages, meaning that bill savings from these brilliant technologies may be equal to, or less than, the monthly cost of buying the system.
A cleaner energy system should be a cheaper one
For years, the conversation around energy has often framed affordability and sustainability as competing priorities.
That’s the wrong way to look at it.
As Britain prepares for a new Prime Minister, we believe there is a huge opportunity to lower energy bills for good. The measures set out in our report show that meaningful progress is possible – and fast – but only if policymakers are willing to tackle the structural causes of high energy costs rather than just the symptoms.
Renewable energy is not the reason bills are high. In many cases, it’s one of the best tools we have to bring them down. The challenge is making sure the energy system is designed so that households and businesses benefit from the cheaper, cleaner power Britain is already producing.
That’s the central argument of our new report, Rewiring the Market: How to Tackle the Hidden Causes of High Energy Bills.
We’re working hard to get our report seen by decision makers. With over 200 pieces of news coverage so far – our efforts are working. If you want to help, please do read our report, and send it to your MP to raise at a government level.
