Why Are UK Electricity Prices So High?

From NOT A LOT OF PEOPLE KNOW THAT

By Paul Homewood

As we are well aware, the UK has some of the highest electricity prices in the world.

It is commonly claimed that the rapid price rise in recent years has been driven by the soaring price of natural gas. In fact, this is only a small part of the story.

I have analysed OFGEM’s energy price cap workings, comparing this quarter with Jan 2019, when the first cap was implemented.

£pa	Jan 2019	Oct 2024	Increase
Electricity Price Cap	683	1118	435
Direct Fuel Costs	195	325	130
Other Costs	488	793	305

https://www.ofgem.gov.uk/energy-policy-and-regulation/policy-and-regulatory-programmes/energy-price-cap-default-tariff-policy/energy-price-cap-default-tariff-levels

Direct Fuel Costs reflect the full cost of generation (ie not just fuel). ROCs are not mentioned, but I believe these are also included. What are not included are all of the other green levies, such as Cfds and Capacity Market payments.

The increase in Direct Fuel Costs is 66%, not dissimilar to the increase in natural gas costs of 78% over the period.  But this is less than a third of the total cap increase. Most is the £305 rise in Other Costs.

So what has happened since 2019?

Here are a few things to consider:

• CfDs
• Capacity Market
• System Balancing
• Smart Meters
• Constraint Payments
• Grid Upgrades
• Inefficient gas generation, due to intermittent working

You get the picture!

The only thing that has changed since 2019 is the rapid decarbonisation of the grid.