UK Energy Prices Problems

The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the collective position or official stance of the Croydon Community Energy (CCE).

Energy in the Autumn Budget

Following an unconventional key speech on the 4^{th of} November, Rachel Reeves has set the stage to justify a potentially difficult autumn budget. It is understood by many that this Autumn budget plans to deduct the 5% VAT on energy bills, easing the squeeze of the cost-of-living crisis. These rumours have been welcomed by those who believe energy is a necessity, not a luxury. However, many environmentalists and economists have raised concerns. They argue that tax cuts should focus on electricity bills first, rather than splitting reductions between electricity and gas. Furthermore, as VAT is a percentage-based tax, this reduction would likely disproportionately benefit those already better off and could risk encouraging gas consumption, contributing to higher carbon emissions.

This article goes on to discuss a few broader challenges of reducing energy bills and explores potential actions to address them. One key concern is the way marginal pricing in wholesale electricity markets sets consumer costs based on the most expensive generation source. Without targeted policies, such as reforming marginal pricing or introducing progressive support schemes, reductions risk benefiting high-consumption households while leaving those in fuel poverty behind. Policymakers therefore need to go beyond blanket tax cuts and implement measures that lift vulnerable households out of energy insecurity.

Marginal Price leads to Rising Costs

Last year, the UK's electricity costs were the highest in the G7 group of developed nations.  Significant voices of the green energy sector, such as Dale Vince, founder of Ecotricity, have been clear about what move the government should make to lower these costs. It begins with separating the cost of gas from the cost of electricity.

Following the European energy crisis, marginally priced electricity markets (like the UK) have been under severe scrutiny. The UK is fortunate to generate electricity in a multitude of ways; our energy mix has roots in 19th-century industrialisation. However, managing an evolving energy mix remains challenging because it relies on an ageing grid and outdated policies. Our privatised network and market are not effective at serving their users.

So, what’s behind the power in our plug sockets? The electricity we receive in our home, in our wires and in our plugs is generated from a range of sources, illustrated above. Nevertheless, the price we pay is not representative of this proportional mix, but rather priced on the most expensive producer. The most expensive producer at present is gas. This means that we pay “gas prices” for every unit of electricity we use, even if it was produced using renewables. We, the consumer, pay for clean energy at the price of regressive, volatile, polluting gas. Furthermore, the UK gas market is integrated with European and global markets, thus domestic gas is priced the same as imported. This marginal pricing system is a major driver of high electricity costs.

Community Energy Solutions

As a nation, we are moving toward a modern grid, but this transition demands a new market structure. Solving this challenge will require exceptional socio-technical and economic collaboration. One of the most promising solutions to counter the flaws of marginal pricing is the growth of community energy. Community energy accelerates the net-zero transition while making it fairer and more inclusive. Initiatives like Croydon Community Energy do more than generate power; they build resilience and equity.

We’ve all seen the chokehold that privatisation can place on essential services. By keeping ownership local, renewable projects ensure profits stay within the community rather than flowing to distant shareholders. This revenue can fund discounted tariffs for vulnerable households and finance upgrades to reduce heat loss, directly cutting bills for those most at risk of fuel poverty. Local generation also strengthens energy security, shielding communities from global gas price volatility. Beyond affordability, community energy empowers people to take control of their energy future, turning consumers into stakeholders and making the transition to renewables inclusive and equitable.

Conclusion

Since 2021, the household electricity price cap set by regulator Ofgem has risen from £603 per year for average households to £926 per year – an increase of £324- or 54%. People are feeling the squeeze and doing all they can to make ends meet. Evidently, this issue is deeply political and requires parliamentary debate. However, rather than reform policy and clear the market, some disenfranchised members in the political sphere have begun calling for renewables defunding. Such a move would leave us greatly exposed to further global energy price hikes and market volatility. If we want affordable, secure energy, policymakers must act now to reform pricing and support community-led solutions. If conservationists shape the environmental safety of our energy mix, and engineers refine its efficiency, then it falls to politicians and economists to make it affordable.

Thanks to CCE member Reece Richards for writing this blog. If you'd like to submit a blog post, please email us at hello@croydoncommunityenergy.co.uk