UK Electricity Prices

Earl Russell Excerpts

Thursday 4th June 2026 Grand Committee

[Earl Russell (LD)]

My Lords, I thank the noble Lord, Lord Lilley, and all those who have contributed. On these Benches, we support the energy transition and reducing our energy bills. They are in fact fundamentally linked, but we must be honest about the cause and the solutions.

UK industrial electricity prices remain among the highest in Europe, as the noble Lord, Lord Harrington, so ably put it, and household costs continue to be significantly more for electricity than gas. Prices have fallen from their peak in 2022 but are still well above pre-crisis levels, and this is having serious impacts.

Once again, instability in the Middle East shows our exposure to unreliable and volatile fossil fuels is the cause. Since the start, the UK has avoided around £1.7 billion in gas import costs, thanks to record wind and solar generation. Clean power improves energy security and shields consumers from fossil fuel shocks.

The Conservatives’ explanation of high prices is that it is driven by renewables and net zero madness. These arguments have been made consistently by many speakers, including the noble Lords, Lord Lilley and Lord Mackinlay, but the arguments do not stand up. The core issue lies in the structure of the electricity market. Under marginal pricing, the most expensive generator sets the price. Even when cheaper renewables are generating power, consumers still pay the price linked to gas. The gas price problem is passed directly to bills. Wholesale prices and, above all, continued reliance on gas are the real drivers. Blaming renewables does not explain or resolve the problem.

It is also a fantasy to argue that North Sea drilling provides the answer or would reduce our energy bills. Domestic production is in inevitable and terminal decline; gas is traded internationally. The North Sea will not impact the international markets, reduce bills or provide energy security.

We have already seen the consequences when these markets turn against us. Reliance on fossil fuels cost the UK economy £183 billion in the four years following Russia’s invasion of Ukraine. This is the cost of structural energy vulnerability. As long as we remain exposed to fossil fuel volatility, we will continue to pay.

This is why the seventh carbon budget is so important. A transition to clean energy is not just environmentally necessary but economically advantageous, reducing bills, strengthening security and attracting investment. The Government’s own analysis suggests that emissions reductions of 87% by 2040 could deliver economic benefits of around £865 billion. This is a real opportunity for stability, resilience and growth. The clean energy sector supports over 1 million jobs, and renewable projects capable of powering the equivalent of 23 million homes have already been secured by this Government, and we support that work.

At the same time, the cost of renewables has fallen sharply, with recent auctions delivering prices well below those for new gas generation. The Government have acknowledged the need to break the link between gas and electricity prices, including through adjustments to the generator levy and encouraging fixed-price contracts for existing low-carbon generation. We support those moves. They are welcome steps, but they must be part of a broader and more urgent programme of reform.

Further electricity market reform is needed and must be accelerated. As long as gas sets the price, consumers will not see the full benefit of low-cost renewables. We need a government strategic gas reserve, outside the market. We must address the imbalance in levies. Electricity wrongly continues to carry a disproportionate share of policy costs, despite electrification being central to decarbonisation. We need greater resilience to future shocks. There must be proper, long-term targeted support for bill payers. A permanent, targeted social tariff is needed. We must move faster on electrification, with heat pumps, electric vehicles and grid infrastructure. The direction is right, but the pace insufficient.