If you think your energy bill is already high, brace yourself. Labour may have promised a Net Zero electricity system that would cut average bills by £300 — but as new research reveals, the opposite is going to happen. We can expect the cost of electricity to increase by at least 75%.
“I have absolute faith,” energy secretary Ed Miliband has said, that Net Zero will “do great things for our country and our world.” Inconveniently, an investigation by one of Britain’s leading energy experts provides evidence that our growing reliance on Miliband’s beloved renewable forms of energy, not the “rollercoaster” fossil fuels market, is more likely to have a devastating economic effect.
For the past two months, Professor Gordon Hughes, a senior fellow at Washington’s National Centre for Energy Analytics and Edinburgh University’s former head of economics, has been working with UnHerd to develop a sophisticated computer model of the UK’s electricity system which provides a robust picture of power generation and why the economic pain is only set to continue.
Miliband, according to Hughes, is starting from a false premise. He is “unambiguously wrong” to claim that the principal cause of rising bills to date has been the price of natural gas. In fact, the wholesale price of electricity, which is where changes in fossil fuel prices are most clearly seen, has generally been constant for the past 20 years. And yet in that same period, electricity bills paid by businesses have almost quadrupled, while those of domestic households have more or less trebled.
It’s true that Russia’s invasion of Ukraine in 2022 saw the European natural gas price surge briefly by up to 500%, while there was a smaller, short-lived spike in 2008, caused by an imbalance between supply and demand. But to blame, as Miliband does,“petrostates and dictators” for the fluctuations is, according to Hughes, just a “convenient scapegoat”. In fact, it’s the ever-growing thicket of taxes, levies and subsidies, stemming from the switch to renewables, which has caused the price increase, for these added extras now comprise more than three-quarters of the cost of electricity on household bills. According to Hughes, “the steady increase in inflation-adjusted electricity prices over the last two decades is largely a matter of self-inflicted harm”.
And his model reveals that under the Government’s 2030 clean power plan, much worse is yet to come.
For true believers like Miliband, this would be a price worth paying if Britain really could become a net-zero paradise. But unfortunately, given the basic inefficiency of renewables, and the fact they often don’t generate power for hours or days at a time, fossil fuels are destined to remain part of our energy mix for many years. This means that if we want to keep the lights on, we are going to have to spend billions of pounds well before 2030 to build new, back-up gas-fired power plants that Miliband claims will only be used 5% of the time, simply because so many in our existing fleet are worn out.
The single biggest element in the coming increase projected by the model is the cost of the planned expansion in renewables. Official estimates of its cost, says Hughes, are too low, and judging by recent market data, the price for constructing new wind and solar farms is likely to be around £150 billion over the next five years — all of which will be added to bills.
Another factor is Britain’s increasing dependence on electricity supplied via undersea cables from abroad. According to the Hughes model, the more electricity we import, the more we pay. But without it, there will be blackouts. In 2024, after all, Britain was a net electricity importer 91% of the time. Yet foreign energy cannot be relied on. Norway has already passed a law allowing its government to block the sale of electricity when its own supply is scarce. Other countries may well follow suit.
You might argue that high prices from European supplies are, in turn, caused by spikes in the natural gas market. But that, Hughes’s model shows, would once again be false: gas accounts for less than 15% of Germany’s energy mix, and less than 5% of France’s. And while Miliband claims his Net Zero plans are needed because gas prices are always bound to rise, that’s also untrue. In Europe, the long-term trend has been stable for 25 years, while in America, the fracking boom has seen costs fall. In other words, to insure against another 2022 — an unusually bad year — Miliband wants to transform British energy in ways that Hughes’s model shows will incur much long-term hardship. That, he notes, “seems like rather a bad bargain”.
“While Miliband claims his Net Zero plans are needed because gas prices are always bound to rise, that’s untrue.”
Worse is to come, especially once Labour’s green revolution really kicks in. It’s certainly true that wind and solar farms can generate energy from nature, saving operators on fuel costs. But the “full system costs” of renewables wipe out these gains. If, for example, the wind doesn’t blow, turbines will need backup generators. And though Miliband says he wants an eightfold increase in large-scale batteries to store electricity when the weather doesn’t cooperate, the technology only functions for around two hours. This winter, we’ve had days on end without wind, and Hughes’s model suggests batteries would make up just 10-15% of the shortfall.
How, then, would Britain secure the rest of the energy it needs? With natural gas! While Miliband claims gas-powered plants will only need to operate 5% of the time by 2030, Hughes suggests the real figure will be at least three times as high — bearing in mind that the Government says growth in electric vehicles, heat pumps and immigration will increase demand for electricity by 11%. To create a reserve big enough to cope when renewables aren’t functioning and parts of the system “trip off” because of a fault, Hughes says that by 2030, Britain will need some 50 gigawatts (GW) of gas or diesel generating capacity, up from 30 GW now, partly because nuclear stations are due to shut, and we cannot rely on electricity always being available from abroad.
Of course, existing gas plants could remain operational, but only run when needed. But this would ignore another problem. The “open cycle” variety of gas-powered turbines that can be fired up quickly, making them suitable for occasional use, have a lifespan of around 30 years — and almost all in Britain have already reached this limit. By 2030, two-thirds of the less adaptable “closed cycle” type will be similarly aged. Even if we make generous assumptions about how many old facilities might still be available, this means building a whole new fleet over just five years, even though these plants would often lie idle.
All this will obviously cost billions. Current turbine prices come in at some £60 million per GW, so building new back-up plants with a total capacity of 30 GW would cost £18 billion, and 50 GW £30 billion. This implies a further question. With the economy in the doldrums, and the Treasury under pressure to fund budget increases in health and defence, how exactly would Miliband pay for his net-zero dreams? Here, again, the answer is levies on bills, the fees that have already raided pockets so dramatically. Contracts for backup power plants are issued by the Government through what it calls the “capacity market”. This is already skyrocketing, from £120 million in 2017 to £1.1 billion in 2024. With renewables continuing to crowd out reliable alternatives, the capacity market is increasingly needed. And Hughes’s model says these levies are likely to reach an eyewatering £7.4 billion by 2030 — a conservative estimate.
The model identifies still further costs. One is the permits operators must buy to burn gas and other fossil fuels, and whose prices are constantly rising. Then there’s the so-called “balancing mechanism” — whereby operators are paid to generate energy in an emergency, or else cut off production entirely in the case of grid bottlenecks. Taking in all these factors, Hughes’s model suggests the cost of electricity production could reach almost £60 billion by 2030, between 70 and 80% higher than it would be if the UK stuck with its current, non-Net Zero system.
Nor is this even the whole story. All told, electricity generation only accounts for about half your bill. Most of the rest is formed of “network charges” — paid to the National Grid and energy firms for ensuring the power gets from producers to end users. The exact numbers are more difficult to calculate. But the National Electricity System Operator (NESO), the Government-owned company that runs the grid, has said that to create a Net Zero system, it will need to vastly expand its network to link up new wind and solar farms. The upshot? A potential outlay of £65 billion by 2030, with network charges rising from between 80 and 117%.
The economic impact of all this, it hardly needs stating, would be disastrous. “It is a tax on all of us,” is how Hughes puts it. “Electricity-intensive industries which compete in world markets can only meet it by reducing wages or profits. Since workers are unwilling to accept reductions in their incomes, the result has been that they have closed their activities in the UK and moved elsewhere.” The evidence is already in, with the recent demise of the Bridgend steelworks, the pending closure of the Grangemouth refinery and the likely end of car manufacturing at the BMW factory in Oxford. Vauxhall, Hotpoint, JCB and niche manufacturers of items such as mattresses are also cutting jobs and have warned they may soon leave Britain too.
Not that Ed Miliband seems to mind. Only last week, he reiterated his commitment to Labour’s net-zero targets, stating that “the single most important thing we can do is stick to our clean power mission”. It seems that to a man seeking to build a world-leading utopia, something as transient as Britain’s future prosperity doesn’t mean very much.
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Technical details of Hughes’s model can be found on his website, Cloud Wisdom. He is also willing to share the model’s code with those who want to know still more.
