UK energy prices are experiencing a dramatic surge, placing immense pressure on households and businesses alike. Propagandists are actively promoting a misleading narrative, suggesting that the solution lies in abandoning net zero policies and reinvesting in North Sea gas extraction. However, these claims are fundamentally false and ignore the real drivers behind the escalating costs.
The Real Culprit: Fossil Gas Prices
As oil and gas prices skyrocket, largely due to geopolitical tensions such as the US and Israel's attack on Iran, opponents of climate policy have become increasingly vocal. Right-wing politicians, think tanks based on Tufton Street, and segments of the billionaire-owned press argue that energy security and lower bills can be achieved by ditching renewables and focusing on North Sea gas. In reality, these assertions are not just slightly inaccurate; they represent the exact opposite of the truth.
Two significant trends have emerged in recent years: electricity prices have soared, contributing heavily to the cost-of-living crisis, and the proportion of electricity generated from renewables has surged from 3% in 2000 to 47% today. Critics wrongly claim that the increase in renewables has caused higher prices, but this is a gross misinterpretation.
How Electricity Pricing Works
Renewable energy sources, primarily wind and solar, are by far the cheapest components of the UK's energy supply. This pattern holds true globally. However, the price of electricity does not reflect the mix of sources. Instead, it is set almost exclusively by the most expensive component, which is fossil gas. Even before the current conflicts, gas prices were already astronomical and rising rapidly. This is the overwhelming reason for high energy bills.
The mechanism behind this is known as "marginal cost pricing." While the majority of electricity comes from renewables and nuclear power, it is sold on the wholesale market at the price of the power source of last resort, which fills any remaining gaps in supply. In the UK, this source is fossil gas. Despite fossil fuels' contribution to electricity supply falling from 73% in 2000 to 27% today, gas still sets the price 98% of the time, compared to an EU average of 39%. This discrepancy occurs because many EU countries use hydroelectricity or nuclear as backup sources, whereas the UK relies heavily on gas.
International Comparisons and False Solutions
Ironically, Norway, which supplies 76% of the UK's gas imports, sees gas set the price only 1% of the time. Norway relies on hydropower for 89% of its electricity, with wind at 9% and fossil gas at a mere 0.9%. The Norwegian approach highlights how a shift away from gas dependency can lead to lower costs and greater energy security.
Proponents of North Sea drilling, such as the Institute of Economic Affairs, have made flawed arguments. They claim that since gas prices in the UK are similar to elsewhere, gas cannot be driving higher electricity prices. However, this ignores the fact that countries like Norway use very little gas for electricity production, resulting in industrial electricity costs less than half of those in the UK.
Recent statements by figures like Claire Coutinho, who argued that energy resilience depends on "maximising the North Sea," are similarly misguided. This overlooks the reality that the UK spent over £100 billion to protect households from gas price spikes caused by Russia's invasion of Ukraine, underscoring the vulnerability of relying on fossil fuels.
The Economics of Gas Extraction
Advocates suggest that extracting more domestic gas would lower electricity prices, but basic economics refutes this. Gas prices are determined on international markets, influenced by major suppliers like the US, Iran, and Russia. The UK's remaining reserves are difficult and expensive to extract, relying on generous tax regimes. Even if extracted, this gas is sold on the international market at global prices, offering no discount to UK consumers. Moreover, the North Sea reserves are nearly depleted, making "maximisation" a moot point.
The potential benefits of North Sea resources have been squandered. Unlike Norway, which used its oil and gas revenues to build a sovereign wealth fund supporting social care and infrastructure, the UK's resources were privatized under policies like Margaret Thatcher's liberalization, allowing private companies to reap profits without long-term public benefit.
The Impact on Industry and Green Charges
Similar false narratives emerged during crises in industries like steel, where right-wing media blamed net zero policies. In reality, the steel industry is exempt from most environmental levies, and its primary issue is high wholesale electricity prices driven by gas. According to UK Steel, nearly three-quarters of the price disparity with France and Germany stems from these wholesale costs.
For consumers, green charges and network fees account for a smaller portion of bill increases compared to gas prices. CarbonBrief estimates that green levies make up just 6% of the rise in bills, network charges 20%, and wholesale prices driven by gas a staggering 53%. These charges are essential for investing in a transition to a carbon-free grid, which will lead to significantly lower future bills.
Underlying Motives: Profit Over People
The prevalence of these misleading claims can be traced to economic interests. Fossil fuels, with their concentrated reserves and exclusive control by licensed companies, offer high profits. In contrast, renewables like wind and solar are low-profit and highly competitive because their sources are widely available. Media proprietors and billionaires, who often invest in fossil fuels, benefit from perpetuating this narrative, effectively gaslighting the public for the sake of ultra-rich gains.
In summary, the surge in UK energy prices is directly linked to fossil gas costs, not renewable energy. False promises about North Sea drilling ignore economic realities and the urgent need for a sustainable energy transition. Addressing this crisis requires a focus on reducing gas dependency and accelerating investments in renewables and storage solutions.
