RE: Energy Prices…The Truth by Neil Woodford.. Pt 1 to12 Jun 2025 19:56
Part 3
I suppose the first point to make is that the UK household price is the fourth highest in Europe and, from what I can see, the fourth highest in the world. The industrial price is an eye-watering 72% higher than in Germany, nearly twice the price in Italy and 2.5x the price in France. It is also, by some margin, the highest in the world and something like 4x the price in the US.
So, why are UK electricity prices so much higher than in Europe and the US? According to the Energy Secretary, it’s because of fossil fuel prices, and more accurately, the gas price. But can this be true? Gas is a globally traded commodity, via LNG cargoes and pipelines. The UK does not need to pay much higher gas prices than Germany, for example, to secure the gas we need in this country. (Gas sets the wholesale price of electricity in the UK energy market just as it does in Germany, the US and in most of our peer economies)
The fact is that Mr Miliband is either ignorant or not being straight with the public about the reasons why electricity prices are so high in the UK. I am confident that the price Centrica pays, for example, to buy gas in international markets is broadly similar to the price other European utility companies are paying. In other words, the UK’s ludicrously high industrial electricity prices cannot be caused by the gas price. The causes must lie elsewhere in the arcane structure of the UK’s electricity market.
In my internet research for this blog, I looked for an accurate analysis of why UK electricity prices are so high. I found a mountain of guff that, like Mr Miliband, pointed the finger at the UK’s dependence on imported gas. But I also found that Germany, whose industrial electricity price is 58% of the price in the UK, imports 94% of its gas from other countries. Italy imports 92% of its gas needs, yet has an industrial electricity price approximately half that of the UK. In other words, this default explanation for high UK electricity prices is just not true.
Here is some further background evidence which I think supports what I am saying. Shown below is another chart from the BBC article I mentioned earlier. It shows that back in the period after Russia invaded Ukraine in February 2022, gas prices increased significantly. During this period, it is true that the huge increase in the price of gas drove up UK household electricity bills. (wholesale costs)
But now that gas prices have returned to a more normal level, the data in the chart shows that for UK households, wholesale costs, which are effectively set by the gas price, account for (see the far-right hand bar on the chart below) approximately 40% of the total costs. Policy costs, network costs, and other (whatever they are) account for the remaining roughly 60%