The cost-of-living crisis has ignited debate across the political spectrum. Headlines blame Net Zero targets, green levies, and fossil fuel profiteers for soaring energy bills. But beneath the noise lies a more uncomfortable truth: the UK’s energy system isn’t broken by accident—it’s broken by design.
In one of the wealthiest nations on Earth, millions struggle to heat their homes, while oil giants post record profits. So, who really benefits from the way our energy is priced, regulated, and delivered?
How it works
To fully understand how the UK energy system fails we must first address the core of the debate – how energy is priced in the UK.
The energy price cap, set by Ofgem, is the dominant force shaping our prices. This is set with 3 factors in mind: the wholesale cost of energy, maintenance cost, and Net Zero influences such as green levies and taxes. The generators of energy sell this to providers such as Octopus Energy in an automatic auction every 30 minutes.
Take wind energy for example – once up and running it has very low wholesale and maintenance costs. As a renewable source of energy any levies and taxes on it are lower. Compare this to oil and gas which are highly regulated and managed and are extremely expensive to maintain, which makes their costs much higher. At the time of writing the wholesale cost of energy on the grid was £6.76/MWh with wind as the largest contributor at 56.6% of all energy supply to the grid.
So why, in a country powered increasingly by wind, are bills sky-high?
The UK uses a system called marginal cost pricing. This means that the cost of electricity is based on the cost of the most expensive unit of electricity needed to meet demand. When gas is needed in the energy mix to meet demand all other units of electricity will be sold at the higher cost of gas energy. So, while we have a growing mix of renewables, as long as we have gas within the energy mix, we will not see the cheaper cost of renewables.
Despite renewables making up approximately 40% of the UK’s energy mix, 98% of the time the cost of energy, due to marginal cost pricing, is set by gas. This is why bills are so high; disturbances in the supply chain of gas such as the Russo-Ukrainian war disproportionately affect the total wholesale of all energy, meaning renewables are also sold at high rates akin to those of gas.
A Broken System
The Energy sector in the UK is broken. The UK pays some of the highest energy bills in the world. As shown in figure 1, the UK has the lowest costs attributed to net zero among major European economies, yet it suffers the highest overall energy prices. The culprit? Wholesale costs.
This disparity isn’t a new phenomenon – in 2025 UK energy prices are £16.47 and £22.49 higher than France and Germany respectively. Back in 2022, during the initial shock of the Russo-Ukraine conflict, we saw a staggering £92.80 disparity with Germany and £153.64 with France.
Figure 1 – A comparison of electricity prices between France, UK and Germany. (Source: UK Steel)
The UK is more vulnerable to energy price fluctuations, and this is because of our energy mix. Approximately 1/3 of the UK’s energy comes from gas while Germany’s is only 18% and France’s reliance on nuclear means less than 10% of their energy comes from gas. This has overseen the price of energy be set by gas in the UK 98% of the time compared to 92% in Germany and just 3% in France.
Because fossil fuel markets are notoriously volatile, any reliance on them, no matter how small, exposes all energy sources to price spikes. This benefits fossil fuel companies, who effectively control our energy sector. Without the price cap, they’d have near total dominance thanks to marginal cost pricing.
In addition to this, when we look at household energy costs. Figure 2 shows the cost of Net Zero policies remains stable and so do the other factors. The real driver in fluctuating prices is that of the wholesale cost. As long as fossil fuels remain a significant part of our energy mix, we’ll be at the mercy of global oil and gas markets, rife with war, disputes and profiteering, all because marginal cost pricing hands over control to these corporations’ profits.
Figure 2 – What factors are influencing household energy costs (Source: Carbon Brief)
The UK Office for Budget Responsibility said that the cost of Net Zero would be £1.4tn, this represents the cost over the next 3 decades up to 2050. Accounting for savings like more energy efficient homes and cheaper running costs when we increase capacity for renewables it was reported the net cost would be £3.44bn.
Representing just 0.4% of GDP, this is minuscule, with military spending being up to 2.5% and aiming to reach 3% by the end of this parliament. If we then consider the cost of not acting, we see that at 2°C increase in global temperatures a 27% increase in flooding by 2050.
So no, Net Zero is not to blame for high energy bills. It’s quite the opposite. The UK’s failure to fully embrace renewables allows fossil fuel companies to continue setting the price of our bills.
A Broken System
The grid is living in the 60s, and it shows. The UK produces much more energy than you’d think but a lot of it will never see the light of day. Why? The system is old and can’t handle it all. We often see wind energy being paid ‘compensation’ to not generate energy.
On 3rd June, Ocean Winds were paid £72,000 to stop generating power for half an hour when the system couldn’t handle any more energy. At first this seems harmless but when we take a deeper look, at the same time a gas fired power plant was paid £43,000 to produce more energy.
It is predicted that by 2030 these payments could cost up to £8bn annually. This will contribute further to our bills and once again benefit the fossil fuel industry. Unless we see radical change in how our energy is managed fossil fuel companies will continue to have a grapple hold of our bills, the entire grid needs modernisation or reform.
Not Here to Serve Us
What was once a bipartisan agreement of decarbonisation has fractured in recent years with leader of the Tory Party, Kemi Badenoch, pledging to scrap Net Zero. The softening of policy from the Labour Party with several investment aimed at decarbonisation either scrapped or reduced. Parties on both sides of the political spectrum have received millions in donations from oil and gas firms to serve their interests, lobbying for relaxing of regulation and watering-down of green policies.
Reform UK have been very vocal against Net Zero, insisting it is too expensive. Yet, when it is broken down the UK Office for Budget Responsibility prices 2050 Net Zero policies and investments at £1.4tn, across 3 decades and including cost savings from more efficient infrastructure will cost £344bn, just 0.4% of GDP.
It is expected that if we weren’t to implement these changes then climate damages could reach 8% of GDP by 2070. Politicians are reluctant to act, as lobbyists for fossil fuel companies continue to influence their policies. Reform UK are believed to have received £2.3million in donations from fossil fuel companies, and this trend isn’t unique to Reform, most political parties are being influenced.
Our energy system is broken, and it will remain so as long as fossil fuel companies continue to influence our political landscape. Marginal cost pricing, the dated grid, and politicians’ reluctance to act; the energy system in its current form does not operate to create affordable energy but to maximise profits for those who set up the system. A system rigged by the fossil fuel companies to ensure we rely on their very energy source.
