For the sceptical among you, I ask you one simple question: Has anyone official ever actually said that green energy will definitely mean cheaper bills, ever? Have a look, you’ll see things like “green energy is cheaper” or “Cheap energy should mean cheaper bills” – do either of those sentences say your bill will go down?
Of course net-zero is important, our environment is constantly being damaged and if we want to leave a sustainable world for our children’s children then we need to act now. But, we must also acknowledge that net-zero is being framed in a way that will convince the public it is going to help us, even though the current system is not set up to do so. I’m going to give a brief explanation as to why our bills will continue to go up as we transition to net-zero and why reaching net-zero won’t bring our bills down.
Cut your bills:
Uswitch Energy Price Comparison* – Compare, Switch and Save up to £420 per year
Broadband Price Comparison* – Broadband from as cheap as £19 per month
Car Insurance Price Comparison* – Save up to £523 per year!
Boiler Insurance* with Home Emergency Assist – 35% off – Use code: REGULATORGUY
What is net-zero?
A common misconception of the term “net-zero” is that it means we’ll no longer rely on gas-fired power stations, this is not true. Net-zero means we remove as much CO2 from the atmosphere as we add. We have techniques for removing CO2 in the atmosphere, such as carbon capture and storage, which are improving constantly. So what the government are currently trying to do is reduce the amount of CO2 we’re creating and increase the amount of CO2 we’re removing from the atmosphere until those numbers are equal, that is net-zero.
What this means is that there is no plan to stop the use of gas-fired power stations. In fact, most experts predict that at the current rate of green-energy uptake, we’ll still be reliant on gas-fired power stations by the year 2050. We’d have been net-zero for 2 decades by then, but still our electricity prices will be linked to the price of gas unless we change the economics of our energy system.
Our single-price electricity wholesale system
Gas-fired power stations are the most expensive way of generating electricity. You’d think with the uptake of green energy sources that we’d see a reduction in our energy bills.
In 2010, only 6.5% of our electricity was produced using green energy. However, in 2024, 51% of the UK’s electricity was produced using cheap green energy. So how come we haven’t seen a huge reduction in our energy bills if over half our electricity is produced using renewable sources? Well it’s because all electricity in the UK is sold at a single price.
Here is an extremely simplified overview of how it works:
- National Grid splits every day into 48 half hour slots
- National Grid then asks all producers to bid on how much electricity they can provide for each half hour, and aims to secure as much as they predict the country needs for that half hour (this is known as our ‘Balancing Mechanism’)
- If National Grid can get all of the required electricity from cheaper sources, then it will, but typically we need some of the electricity to come from gas-fired power stations
- National Grid will pay all producers the same price for the electricity it buys for each half hour slot. This is called a single-price market
- The price National Grid pays has to ensure that the most expensive generators still make profit, so they will buy the green-produced electricity at the same price they pay for gas-fired power station electricity
- National Grid then sells the electricity on to the energy suppliers, at a mark up to cover National Grid’s costs and profits (as it is a private organisation). This price that the energy suppliers pay is called the Wholesale Price of electricity, and this cost is part of the cost of our energy bills.
From this, it’s easy to see how net-zero will not reduce our bills. Whilst we still have gas-fired power stations producing some of our electricity, the single price market will keep electricity costs way higher than they were pre-crisis.
Are we being lied to?
The short and accurate answer here is ‘no, we’re not being lied to, technically’.
When you hear a politician or CEO of a massive energy company say something along the lines of “renewable energy is cheaper and better for the environment” they are not lying, they are just being careful with their words. Green energy is cheaper – to produce. No one has said, it will give you cheaper energy bills.
Again, when you hear these people say “green energy should bring down your energy bills” they are not lying, but again being careful with their words. “Should” isn’t “will”. Of course cheaper produced energy should bring down our bills, that makes perfect sense, but will the single-priced system in place, we will not see lower bills. This choice of words means that when we reach net-zero either they can say “we didn’t say it WOULD bring down your bills” or, if we’re really lucky, the government would have radicalised our energy system and they’ll be able to say “told you so” and our bills will actually reduce.
Cut your bills:
Uswitch Energy Price Comparison* – Compare, Switch and Save up to £420 per year
Broadband Price Comparison* – Broadband from as cheap as £19 per month
Car Insurance Price Comparison* – Save up to £523 per year!
Boiler Insurance* with Home Emergency Assist – 35% off – Use code: REGULATORGUY
Green Energy is Cheaper, but our bills aren’t? Who is benefiting?
This one is a no-brainer, it’s the producers of the green energy. This is why so many energy companies are moving into green production. The initial cost of buying windfarms or solar farms is quite high, so the government give them huge tax reductions to help fund the initial investment. Then, they can produce electricity cheaply but sell it at the same price as gas-fired power station electricity, making huge profit margins on their production.
Shell energy made around £32.3bn in profit in 2022, the most profit it has ever made in it’s 115 year history. They claimed only 5% of this was made in the UK, so let’s call it £1.6bn. The tax rate in 2022 for gas and oil companies in the UK was effectively 65% – this is 40% normal tax rate plus 25% windfall tax, so you’d expect that Shell should have paid around £1.04bn in taxes to the UK government that year… Shell paid just £15m in UK taxes in 2022, less than 1% of what they should have paid, this is primarily due to the tax discounts they get from the UK government to invest in green energy infrastructure.
Interestingly, in Norway, Shell paid over £6bn in taxes in 2022, but the UK got just £15m.
What can we do?
Short term, the best thing you can do is to stop over-paying for your energy bill, you’re just giving excess profits to these massive energy companies for no reason. Be active in the energy market by switching to a cheap fixed rate tariff every year. Do not sit on a variable/standard/default tariff, these are profit maximisers for energy companies. You can use either of the links below to run a price comparison, either with Uswitch or Free Price Compare.
In the greater scheme of things, you need to be involved with government and Ofgem consultations on the energy market. I help with this. My job, as The Regulator Guy, is to simplify these long, complicated consultations and to give you access to my responses so that you can simply email them onto the right departments and have your say. Subscribe to my newsletter to keep up-to-date with these consultations and get involved in the process.
Thanks all,
Richard Winstone
The Regulator Guy.
Cut your bills:
Uswitch Energy Price Comparison* – Compare, Switch and Save up to £420 per year
Broadband Price Comparison* – Broadband from as cheap as £19 per month
Car Insurance Price Comparison* – Save up to £523 per year!
Boiler Insurance* with Home Emergency Assist – 35% off – Use code: REGULATORGUY
