British electricity prices are on track to exceed levels seen in the aftermath of Russia’s invasion of Ukraine by 2030, according to Chris O’Shea, chief executive of Centrica, the owner of British Gas. O’Shea made the prediction during the International Energy Week event hosted by the Energy Institute in London, attributing the forecast to years of underinvestment in the UK’s energy infrastructure.
O’Shea emphasized that the rising costs are not directly linked to the transition to net zero, but rather stem from the expense of upgrading the country’s energy systems. “We’ve underinvested in the system for many years, and whether it’s the cost of building a new gas-fired power station or a new windfarm, the costs have gone up,” he said, according to reports.
The assessment comes after the government’s recent auction for offshore wind projects, which, whereas avoiding the exceptionally high prices initially feared, still resulted in guaranteed prices of £91 per megawatt hour for 20 years. This figure is higher than the wholesale electricity price of around £80 experienced over the past year.
While gas-fired power plants are also projected to be expensive, due to rising turbine costs, the government acknowledges their necessity as backup power sources, given the aging fleet of existing gas stations. Nuclear power, including projects like Hinkley Point C and Sizewell C, and small modular reactors, are also not proving to be cost-effective solutions. A significant factor driving up costs is the estimated £80 billion upgrade to the electricity transmission grid by 2031, a project required regardless of the energy mix.
Energy Secretary Ed Miliband has adjusted expectations regarding the impact of the government’s 2030 clean energy plan on household bills. The initial claim that the plan would reduce bills by £300 has been revised, with £150 now being shifted to general taxation. Miliband described this as a “downpayment” towards fulfilling the £300 promise, speaking before the energy select committee on Wednesday.
Despite these efforts, British businesses face some of the highest industrial electricity prices globally. The government is offering discounts on network charges to 500 of the most energy-intensive companies through the “supercharger” scheme. A broader “British industrial competitiveness scheme” is planned for April next year, potentially offering savings of “up to” 25% to another 7,000 companies, though details regarding eligibility and the extent of savings remain unclear.
Industry groups are expressing concern about the impact of high energy costs on competitiveness. The Chemical Industries Association predicted further closures, adding to the 25 sites that have already closed in the past five years. Steve Elliott, the association’s chief executive, stated that energy costs in the UK are “as much as four times higher” than in key competitor countries, exacerbated by government policy. He also cited concerns about carbon taxes and unsustainable decarbonisation deadlines, as well as the decline of the North Sea oil and gas industry.
Recent government interventions, such as the rescue of Scunthorpe’s steelworks and £120 million in funding for Ineos’s chemicals plant at Grangemouth, have been reactive rather than strategic. These interventions were made to prevent worse outcomes, but do not represent a comprehensive plan to address the challenges of high electricity costs for industry.
