Britain is once again paying the price of an energy system that is more effective at extracting profits than delivering security. Illegal war and geopolitical disruption are sending fossil fuel prices soaring – and because our electricity market turns volatile gas prices into higher electricity bills, families here risk paying the cost. The government is already unpopular. How it responds to this crisis, and the wider crisis of affordability, will define its legacy. Its instinct has been to double down on clean power. That has strong merit – but understanding that strategy’s limits shows why deeper reform is urgently necessary.
The government’s goal is clear: achieve stable prices by removing gas from the grid. Britain’s electricity market uses a marginal pricing system, which means that the price paid for all electricity at any moment is set by the most expensive source needed to meet demand. Even though gas produces only about a quarter of our electricity, it sets the price around 85% of the time. That means even when renewables are generating most of the country’s power, your bill doesn’t reflect the cost of solar or wind. And because gas is a global commodity with the price set by the international market, the closing of the Strait of Hormuz translates into rising electricity bills in Hull – even as the horizon grows thick with wind turbines and the share of clean power on the grid grows every year.
Ed Miliband knows this. Hence his strategy. Flood the grid with renewables, ultimately breaking the link between gas prices and electricity bills. Having worked with him in a board capacity several years ago, I know how committed he is to climate and economic justice, and his instinct here is correct. Grid decarbonisation insulates Britain from fluctuations in global gas markets. But if the aim is to protect households and reduce the overall cost of the transition, it isn’t enough.
The price of electricity turns not just on what technology powers the grid, but on the architecture of the energy system itself – who owns it, how it is financed, and how the market is designed.
Expanding renewables will push the majority of gas off the system over time, but the speed and scale required to meaningfully reduce wholesale prices are significant. Until gas is genuinely marginal, it will continue to set the price much of the time. Even as clean power expands, bills will remain high and volatile. This is a decade-long problem, not a near-term fix. In other words, we cannot respond to the immediate crisis by saying the solution is to get off fossil fuels; that might be the long-term destination but the energy system as it exists today – with fossil fuels still playing a central role – requires a different response.
The immediate solution is to reform a market where gas sets the price for everyone. The government should move legacy renewables and nuclear into a single-buyer model – with Neso, the energy system operator, as sole purchaser – while placing gas plants in a strategic reserve. Generators would receive stable fixed prices, but gas would lose its price-setting function, while eliminating the windfall profits of non-gas generators. Spain and Portugal demonstrated the principle in 2022, decoupling electricity prices from gas through a negotiated exception to EU market rules; bills fell sharply – not by changing the fuel mix but by reforming the market.
But ending a dysfunctional pricing mechanism still leaves a second problem intact: the cost of financing the transition itself. Decarbonising electricity requires hundreds of billions of pounds in new generation and network infrastructure. Given the scale of investment, even a percentage point difference in interest rates can make a big difference to end prices. When that investment is privately financed, households pay a premium that wouldn’t exist with direct public investment.
Compounded over the decades-long lifetime of new clean energy assets, the extra financing cost of private capital alone could run into the hundreds of billions. A captive public will foot the difference. This is the privatisation premium in action – the elevated price that consumers are forced to pay to access basic necessities when essential investment is privatised. We might decarbonise the grid, but bills would be higher than they need to be, and the upward redistribution of income from bill-payers to capital would continue.
The government is right to defend clean power – but the Iran crisis reveals what more must be done. Price stability and lower system costs requires not just new energy technology but a different energy economy: reformed markets, public ownership of essential infrastructure and investment that works for bill-payers rather than bondholders. Clean power can break our dependence on gas, but only a public power system can stop the extraction of rent.
