October 25, 2025 - 1:00pm
This week, the Tony Blair Institute for Global Change said that the UK’s energy strategy needs a reset, suggesting that the race for clean power is happening too quickly and costing too much. The think tank cautioned that the UK’s current energy strategy risks getting the balance between cost and security wrong, and warned that if the energy transition “continues in a way that raises costs, weakens reliability and undermines growth, it will fail both politically and practically”.
All this will make disappointing reading for Energy Secretary Ed Miliband, who is increasingly under pressure to deliver Labour’s promise to cut household energy bills by £300. This commitment was inspired by an October 2023 report from Ember, a think tank that campaigns for faster decarbonisation, which compared the June 2023 Ofgem price cap with a hypothetical scenario under Labour’s “clean power by 2030” plan, suggesting a £300 saving was possible. At that point, the wholesale component of the price cap was £2,170 per household.
What the report’s authors missed, or quietly ignored, was that global gas prices had already started to fall. By April 2024, the price cap period in which Labour’s election manifesto was published, the wholesale element had plunged to around £720. The overall cap fell from £3,280 to £1,690 — far more than the £300 drop delivered under the previous Conservative government.
Of course, the Conservatives cannot take credit for the reduction in gas prices, which simply reflected new global supplies displacing lost Russian gas. But by the same token, Labour will not be able to take credit for further reductions expected in the coming year. Unfortunately, these falls are likely to be swallowed up by rising subsidy and network costs as Miliband throws every penny of taxpayer cash he can lay his hands on at meeting his Clean Power 2030 pledge.
Even Ember now admits the original analysis is out of date and must be revised to reflect “higher subsidy costs”. That is quite the understatement: subsidy payments are rising sharply. The Renewables Obligation, which should be tapering off as projects in this legacy scheme age out, is becoming more expensive because payments are indexed to the higher RPI (Retail Prices Index) rather than CPI (Consumer Prices Index) inflation measure. Contracts for Difference are costing even more as new auctions deliver higher rather than lower prices. The current round has been sweetened to provide 20- rather than 15-year contracts and is still likely to have higher strike prices than the last round, when renewables bid at or above the cost of generating electricity from gas.
Meanwhile, grid costs are ballooning. Regulator Ofgem continues to approve record capital allowances for network companies, with the costs feeding straight through to bills. These are multi-billion-pound commitments that will hit consumers long after the current parliament. Legacy grid upgrades are also overdue, adding further pressure.
Other costs linked to renewables are rising fast. The cost of turning off wind farms because of grid bottlenecks is forecast to increase ninefold by 2030, and the expense of managing the real-time intermittency of weather-based generation is accelerating. Even traditionally cautious energy CEOs are now saying bluntly that these “non-commodity costs” are getting out of hand.
The need to pay for new gas generation to replace an ageing fleet is not even on the radar. A third of Britain’s capacity was built in the Nineties and is nearing end-of-life, yet most analysts agree we will need all of it to keep the lights on when it’s neither windy nor sunny.
Ember is now proposing a fiscal sleight of hand, moving subsidies onto general taxation and paying for new network infrastructure with taxes to lower bills. Labour is also toying with a cut in VAT on energy, worth £84 on the current bill. While both moves are welcome, trying to deliver the £300 saving this way would be cheating. Shifting costs from bills to taxes does not make them disappear, and won’t save most households any money, since the “saving” on energy will be offset by higher taxes — or higher prices if those taxes fall on businesses instead.
Gas prices, which were blamed for high bills, are already down 87% from their 2022 highs and are likely to return to long-term averages in 2026. That will reduce costs. Unfortunately, Labour’s madcap dash for renewables will drive other costs so high that nobody will notice. Pretending to lower bills by playing with the tax base is an insult to the public. Britain needs cheap energy, not cheap accounting tricks.
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