Why Is UK Electricity So Expensive?

How much does electricity cost in the UK?

In 2024, the average price of electricity for a typical household in Great Britain was 30p per kilowatt hour (kWh). This amount includes both the unit rate and the standing charge that is paid every day. In Northern Ireland, the costs were a bit lower, at about 27p per kWh.

The energy price cap is set by Ofgem, the energy regulator. As of early 2025, it is £1,928 per year for a household using a normal amount of energy. This amount is based on a standard variable tariff and is paid by direct debit. The purpose of this cap is to help protect people from higher bills when the wholesale price of electricity and natural gas prices go up.

Why is electricity still expensive if we use more renewable energy?

In 2024, more than 50% of the UK’s electricity generation came from renewable energy sources like wind farms and solar panels. Still, electricity prices are high. This is mostly because of the way the electricity market is set up.

The UK has a marginal pricing system. This means the price of electricity is decided by the most expensive source needed to keep up with demand. Gas power plants are often used when demand is high. So, the cost of gas determines the price, even if lower-cost renewable energy is available.

The impact of gas prices on electricity costs

Natural gas plays an important role in electricity generation, even if its share is smaller now. After the energy crisis caused by the war in Ukraine, international gas prices rose sharply. This rise led to higher wholesale gas prices. As a result, the price of electricity also went up.

What role does the electricity market play?

The UK electricity market now uses a national pricing system. In this system, all energy suppliers get the same market price, no matter how they make electricity. This means that wind farm operators and solar panel projects, which create energy at a lower cost, still get the same high price set by gas plants.

This leads to higher costs for people and more profit for suppliers. Experts say we need to change this system to a zonal pricing model. This model would show regional supply and demand. It could help lower costs where renewable energy projects are more available.

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How does the UK compare to other European countries?

The UK has some of the highest electricity prices compared to other EU countries. In the first half of 2024, the average price in the EU was 24p per kWh. In the UK, the average was higher at 30p per kWh.

One reason is that the UK depends a lot on gas imports. This is different from countries like France, which use more nuclear power. Norway is another example; they rely on hydropower. These energy sources are less affected by fossil fuel markets.

Why does the energy price cap matter?

The energy price cap sets a limit on what energy suppliers can charge for each unit of electricity and each unit of energy. This cap covers the standing charge, wholesale costs, and transmission costs. If there were no cap, some suppliers might charge much higher unit rates, especially when wholesale energy prices go up.

The cap does not prevent prices from going up; it only makes the increases slower. In 2022 and 2023, the cap went up a lot because of high natural gas prices.

What changes are being proposed?

Reforming marginal pricing

A change from marginal pricing could be beneficial. If renewable energy projects received payment according to their actual strike price (the set price they decided to sell at) instead of the market price, it could reduce the total energy costs for consumers.

Boosting heat pumps and home efficiency

The government wants more people to use heat pumps instead of gas boilers. Heat pumps use electricity and save energy. But, high electricity bills stop many families from making the switch.

Reducing dependency on fossil fuels

More investment in renewable energy and less use of fossil fuels like gas can help lower the risks of gas price changes. The UK will work on building more wind farms, solar farms, and power plants that have low carbon emissions in the next few years.

Why are standing charges so high?

The standing charge is a set amount you pay every day, no matter how much energy you use. This fee goes towards keeping the energy supply system running, which includes things like pipes, wires, and customer support.

By 2025, the average standing charge for electricity in Great Britain will be about 60p each day, adding up to around £219 in a year. Some advocates feel that this practice hurts customers who use less electricity. They believe it would be better to change this to fairer unit rates.

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How much gas does the UK still use?

The UK still gets around 35-40% of its electricity from gas power plants. This is especially true when renewable energy output is low, like on calm or cloudy days. The country also uses gas for heating. This leads to higher gas bills in the colder months.

In 2024, the amount of gas that the UK imported stayed high. This situation keeps the country vulnerable to international gas prices. As a result, it is hard to lower energy bills, even with more renewable energy sources being added to the grid.

What’s next for the UK’s energy supply?

To lower high electricity prices, experts recommend:

• Changing the electricity market so it pays for renewable energy fairly.
• Lowering wholesale gas prices by depending less on fossil fuels.
• Building more renewable energy projects such as wind and solar.
• Helping homes switch to heat pumps and make insulation better.

Until these changes occur, the UK will keep facing higher costs than many EU countries.

Correct as of 22 April 2025

FAQs About Why UK Electricity Is So Expensive

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