Energy bills Why we pay so much and five ways to bring prices down

One of Labour's key election promises was to cut energy bills by £300 a year by 2030 while making Britain a "clean energy superpower".

- Jillian Ambrose

The job is already halfway complete: renewable energy made up more than 50% of the UK's electricity supply for the first time last year. So why does Britain continue to have one of the most expensive electricity markets in the world? Industrial users complain those costs are driving companies out of business and discouraging investment in the UK.

The reason is simple, according to experts. It is down to Britain's reliance on gas - the price of which was sent soaring by Russia's invasion of Ukraine.

"Great Britain's dependency on gas imports has been the most important factor behind higher gas and power prices in the market," said Kate Mulvany, the principal consultant at the energy advisory company Cornwall Insight.

Prof Michael Grubb of the UCL institute for sustainable resources said in a research paper that, although fossil fuels used to be cheaper than renewable energy sources, "that has turned on its head as gas prices shot up and the cost to produce renewables such as wind and solar power has plummeted".

He said: "If we actually paid the average price of what our electricity now costs to produce, our bills would be substantially cheaper."

However, gas-fired power stations in effect set the market price for electricity: on any given day it is dictated by the most expensive source of generation available, which in the UK would be gas.

Under this "marginal pricing" system, the price is set by gas 98% of the time, the highest rate across Europe and well above the EU average of 38%. In some cases, the soaring cost of firing up older gas plants to meet an increase in demand can cause prices to rocket. Earlier this year, two gas power stations were paid more than £12m to supply only three hours of electricity after freezing weather pushed up prices.