Sarah Montague of BBC Radio 4’s World At One programme on Monday April 14th 2025 interviewed Adam Berman, Director of Policy and Advocacy at Energy UK, the trade body for energy firms, and quizzed him about why the UK has such high energy prices.
Berman’s answers were quite revealing. It seems the real culprit has been hiding in plain sight: it’s because the Government is using a tax to prevent renewable electricity producers from benefiting from the difference between the high price of electricity (set by gas) and the cost of producing it from renewable sources (negligible on a day-to-day basis). Fair enough: but, crucially, the Government is then failing to pass the money it makes from this scheme onto consumers, meaning we keep on paying the high price while the Government pockets the savings due to the renewable sources.
Here’s the exchange in full.
AB: In some ways we’ve been a victim of our own success which is that we’ve done a fantastic job of getting rid of emissions from the electricity sector in the UK. We’ve got rid of about four-fifths of our emissions since 1990. The vast majority of that has come from a shift coal to gas power stations because gas, when you use it for combustion, it has about half the emissions of coal. The tricky thing is the way our electricity market works, which is that gas makes up about a third of the electricity we generate in the UK on an annual basis, but it sets the price the majority of the time. And that’s because if you look at any given hour you might have lots of different sources of electricity into that; you might have some wind, some solar, some nuclear, but they’re usually not enough to fill every minute in that hour and so you end up having a bit of gas or a lot of gas, depending on what the weather conditions are and, like any international commodity market around the world, it runs on what’s called ‘scarcity pricing’, and so you end up with that final bit of generation setting the price for the whole generation.
SM: So, even if a tiny amount is used, its unit price is what sets the price for much cheaper ways of getting it?
AB: That’s correct.
SM: So, the charge that it’s because of the dash for Net Zero, that that has seen energy prices rise, is that correct?
AB: No, I mean, if you look at the way electricity prices have moved up and down over the last few years, it is correlated almost exactly with what the international gas prices do. Actually, if you look at the energy crisis from 2022, 2023, it wasn’t really an energy crisis, it was a gas crisis. The government had to spend about £100 billion supporting homes and businesses across the country from cripplingly high energy bills, all because gas was so expensive.
SM (garbled): So, over time they’ve all [sic] this clean energy comes in – are they benefiting from clean energy but they’re getting paid for more expensive gas?
AB: So, that has been a problem historically and through the energy crisis the government looked at that because, as you say, they had very low operating costs on a day-to-day basis if you have a wind turbine out in the North Sea, but you might be benefiting notionally from the higher cost of gas which sets the price of electricity. So, there’s actually a standalone tax that addresses that difference which is there to this day which [the] Treasury has refused to this day to [unintelligible] and use to bring down people’s bills.
SM: So, they’re not necessarily benefiting from [it], or at least entirely, but the Government is?
AB: Exactly.
SM: OK. So, that brings us to… there was a review into reforming the pricing in the electricity market. I know there were two consultations. Where do we get to with that?
AB: So, part of this big consultation process, how you look at the electricity market, how you reform it to make it fit for the future, was thinking – what can we do around pricing? And there were these proposals on the table, we split out the electricity market, you have the clean stuff over here, you have the dirty stuff over there, and you make sure the clean stuff sets the price for the majority of the time. To be really honest, the government (and by government I really mean officials) spent the best part of two years looking at this and they couldn’t quite figure out how to have it done. There’s no electricity market round the world which works in that way. It’s very hard to differentiate between these different clean technologies. They all serve slightly different purposes. You have flexible intermittent renewables… you might have your wind turbine going when the wind is blowing. You might have nuclear but that’s baseload. All of these do slightly different things so in practice it’s really hard to differentiate and so what they concluded as part of that consultation process was that the best way to get bills down in the longer term was to ensure that we move rapidly towards clean power as quickly as possible. And so you’re moving to a point where more and more hours of the day, hours of the year, you can have clean power setting 100 percent to the price.
SM: And so, we might continue with the point where you’re using a tiny amount of gas but it’s still setting the price, but there’ll be more days where it’s 100% green?
AB: Exactly. The only complication here, and it’s important to be honest, is this is going to take time, like any long-term infrastructure project, the full benefits of clean home-grown energy are going to take to enable a fundamental change in energy pricing and, you know, for the most part, when we look at…
SM How long?
AB: …projections of energy prices. Well, you know, probably the early 2030s realistically. I mean, this will happen over time.
SM: Is there any reason – you talk about hypothecating – what the Government takes in tax could be just recycled back in to lower the price?
AB: There’s no reason why that couldn’t be done.
A cynic might wonder if, having established how much UK homes and businesses can be fleeced charged for energy, exactly how or why prices will ever be allowed come down. Especially if there’s a tax in it.
You can listen to the interview here. Crank forward to 18:45 in.
Stop Press: David Turver thinks Berman’s got his figures wrong. Read his response here.
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