On 16th July 2025, Richard Tyce MP wrote to energy industry CEOs, officially notifying them and their potential investors that participation in the UK government’s upcoming Contracts for Difference Allocation Round (AR7) and Clean Power 2030 framework auctions carries significant political, financial and regulatory risk for their shareholders.

His letter argues that “CP2030 targets are not deliverable without imposing intolerable costs on taxpayers, households, manufacturers and the broader economy” and refers to “real-world consequences of soaring energy bills,” adding “billions of pounds of subsidies and other costs to UK energy bills.” This opinion is not only misinformed but also misleads the electorate into believing that renewables are the sole reason for soaring energy bills in this country.

The Reality of UK Energy Prices

The UK is currently suffering from electricity prices that are amongst the highest in the world, with UK industry spending 60% more per unit of electricity than any other European counterpart, according to Drax Quarterly Insights, Q4 2024 [1]. Renewable energy has expanded from 5% a decade ago to over 40% today, but this hasn’t caused the price problem.

Countries with significantly higher renewable penetration maintain lower electricity costs than the UK. Portugal achieved 71% renewable electricity in 2024 [2], with hydropower (28%), wind (27%), photovoltaic (10%) and biomass (6%) making up the mix [3]. Despite this high renewable share, Portugal has consistently had the lowest wholesale electricity prices in Europe in recent months according to energy research group Ember [4]. In the first half of 2024, the average price in Portugal was 0.2539 euros per kilowatt-hour (kWh), while the average in EU countries was 0.3010 euros per kWh, 19% higher than Portugal [5]. Denmark achieves over 70% renewable electricity while maintaining industrial prices at 9 eurocent/kWh, well below UK levels [6].

Renewables don’t set our energy prices because the structure of the UK energy market means fossil fuel prices, particularly gas prices, continue to set electricity wholesale prices regardless of how much renewable energy we generate.

Infrastructure Barriers Keep Prices High

Britain’s existing energy infrastructure serves as an additional barrier that keeps energy prices high. As an island nation, it is costly to build interconnectors between the UK and mainland Europe, therefore our capacity to import cheaper European energy remains limited. Domestic transmission capacity creates further problems; network congestion prevents power delivery from renewable sources, resulting in millions of pounds being spent on curtailment payments. We’re essentially paying wind farms not to generate. Upgrading and expanding the country’s infrastructure will require investment, but this cost is necessary to escape the volatility of fossil fuel prices.

Understanding Energy Policy Costs

Current energy policies add costs amounting to around a quarter of the typical UK electricity bill. Most of these levies are applied to electricity but not to gas, which works against decarbonisation because it makes zero carbon technologies like EVs and heat pumps seem less attractive. Many of these “costs” fund schemes like ECO (Energy Company Obligation), which upgrades homes for the most vulnerable, directly cutting bills for those in poverty.

Older renewable support schemes fall under “environmental costs” on energy bills, but more recent renewable projects are funded under the government’s Contract for Difference (CfD) scheme. These newer projects actually repay the government whenever wholesale electricity prices exceed their contract price. During the 2022-23 price spikes, renewable and low carbon generation sites were saving consumers money because they were selling electricity at wholesale prices far in excess of their contracted price. This meant hundreds of millions flowed into the Treasury, with CfD windfarms alone paying back £660 million to £1bn over 18 months [7]. That money helps fund public services rather than energy company profits. High wholesale prices meant renewables were effectively subsidising the government, not the other way around, yet most people miss this subtlety.

How Gas Prices Control Your Electricity Bill

Wholesale gas prices have risen by two-thirds over the last five years, and this wholesale cost makes up the largest share of consumers’ bills. The problem is how we price electricity, not how we generate it.

Britain’s electricity market holds daily auctions where generators bid the price they’ll sell electricity for. The highest bid needed to meet demand sets the price for ALL electricity, including cheap wind power. Gas plants are almost always needed to meet peak demand, therefore their high operating costs set the “marginal” price paid to every generator. This means gas plants set electricity prices even when renewables provide most of our power. When Russia invaded Ukraine and international gas prices rocketed, our electricity prices followed despite wind and solar costs remaining unchanged. Gas prices, not renewable subsidies, control our bills.

The Solution: Market Reform

Reforming the electricity market to break this dependence on gas prices is the only way to genuinely reduce electricity bills. Through the CfD process, the more renewables and energy storage we commission, the lower energy prices can become because these technologies aren’t hostage to volatile international fossil fuel markets.

The political rhetoric focuses on opposing renewable energy development but offers no solutions for the fundamental market structure that keeps electricity prices high. Without market reform, abandoning our renewable ambitions would simply leave British consumers more exposed to volatile international gas prices, precisely the opposite of what’s needed to reduce bills.

We have a simple choice: continue blaming renewables while gas prices dictate our bills, or reform the market to let cheap, British renewable energy deliver the lower prices it’s capable of providing.

References

[1] Drax Quarterly Insights, Q4 2024. Electric Insights. Available at: https://reports.electricinsights.co.uk/q4-2024/why-are-britains-power-prices-the-highest-in-the-world/

[2] Redes Energéticas Nacionais (REN), “Portugal’s renewables meet 71% of power demand in 2024”, January 2025. Available at: https://www.portugalglobal.pt/en/news/2025/january/portugals-renewables-meet-71-of-power-demand-in-2024/

[3] REN, “Renewable energy production in Portugal 2024”, January 2025. Available at: https://www.ren.pt/ (Note: Specific data cited from multiple sources including REN announcements)

[4] Ember, “Portugal electricity prices analysis”, May 2024. As reported in The Progress Playbook. Available at: https://theprogressplaybook.com/2024/05/06/portugal-is-averaging-91-renewable-electricity-in-2024-with-lowest-power-prices-in-europe/

[5] Energy Services Regulatory Authority (ERSE), “Electricity Price Comparison Bulletin”, October 2024. Based on Eurostat data. Available at: https://www.theportugalnews.com/news/2024-10-29/electricity-prices-in-portugal-below-eu-average/93157

[6] Energy in Denmark statistics, Denmark electricity prices for industry, 2024. Available at: https://en.wikipedia.org/wiki/Energy_in_Denmark

[7] Energy & Climate Intelligence Unit, “Offshore wind: All at sea?”, August 2023. Available at: https://eciu.net/analysis/reports/2023/offshore-wind-all-at-sea