Nick Hart, Socialist Party National Committee
This month, the new Labour government released its Clean Power Action Plan for 95% of Britain’s electricity to come from renewable sources by 2030. According to Energy Secretary Ed Milliband, this will mean “A future where our energy system is reliant on homegrown clean power… that will provide energy security, good jobs and lower bills”. Though even this is a retreat on Labour’s original pledge from before the election for 100% clean electricity by the end of the decade.
Looking to tap into the growing hatred of Keir Starmer’s Labour government, right-wing commentators and politicians, including new Tory leader Kemi Badenoch, have declared their opposition to ‘net-zero’ policies designed to eliminate the use of fossil fuels. Reform UK MP Richard Tice recently took to social media to declare: “Britain paying highest electricity prices in world despite sitting on vast oil and gas treasures. Due solely to high renewables and the zealots.”
With energy prices up 34% in the last three years, many working-class people will be angry at the extra strain placed on already tight budgets by any further increase in the cost of electricity and heating. At the same time, devastating recent floods in Valencia along with ‘freak’ weather events and flooding becoming a regular occurrence here in Britain will leave many equally anxious about the growing pace of climate breakdown, and see the urgent need to phase out fossil fuels.
So is clean energy more expensive? And if not, what is behind the rising cost of our bills?
The truth is, the cost of generating electricity from wind and solar farms dropped below that of natural gas (now the most commonly used fossil fuel for electricity in the UK) way back in 2015. The cost per unit of electricity from wind and solar farms being built today is less than half of that for gas.
During 2022 and 2023, renewables made up over half the electricity used in the UK. So why have we been paying more than ever for what comes out of our plug sockets at home?
The reason we aren’t already rolling in cheap and clean energy is the failure of the capitalist markets championed by Starmer, Badenoch and Nigel Farage alike.
Prices on the UK’s wholesale electricity market are based on the ‘marginal cost’ system, where the most expensive method being used to produce electricity during any one half hour sets the price paid for electricity as a whole. When renewables and nuclear are unable to meet demand for electricity, gas power plants are fired up.
Prices for natural gas on the world market surged following the Russian invasion of Ukraine. Gas producers charged more, and renewables producers benefited too.
It is a win-win situation for UK energy producers – their costs decrease as more energy is made from cheap renewables but the price they can charge for it stays at the higher rate.
In addition, the Contracts for Difference scheme introduced under the Tories in 2014 guarantees a minimum price per unit of energy paid to producers to smooth out fluctuations depending on demand and weather. A levy is paid by energy retailers to fund this and factored into bills at a cost of roughly £100 per household per year.
No wonder the UK energy sector made profits of £420 billion in the last three years! Despite this being very good news for shareholders of those companies, money being sucked out of the budgets of businesses and consumers to be spent on ever-increasing electricity bills is a problem for British capitalism as a whole.
That, as much as environmental concerns, is likely guiding the attempts of the Labour government to try and wean the UK off natural gas, including through its newly launched Great British (GB) Energy company. However, this threatens to be just a drop in the ocean.
Far from bringing electricity production, distribution or retail back into public ownership, GB Energy amounts to a state-backed investment fund to try and nudge the existing private energy companies down the road to net-zero greenhouse gas emissions.
The hope is that, by taking minority stakes in new solar, wind and tidal energy projects, GB Energy is able to encourage more investment from developers, often backed by investment funds, and existing energy producers. By the government’s own estimates, roughly £150 billion is needed by 2030 to decarbonise electricity production, with just £24 billion pledged by the private sector since the election.
New clean energy sources funded by this money won’t directly take the place of gas plants, but will be released into the energy mix to compete with them. And where capitalists have invested in assets, they’re reluctant to let them go (as an instant ban on fossil fuel extraction would mean) or see revenue taken away from them (as diversifying into clean energy could do).
Capitalist businesses involved in the production and supply of oil and gas will want to generate the maximum return on the (literally) sunk costs in having built the offshore platforms and pipelines used to extract fossil fuels and transport them to power stations and consumers.
Unsurprisingly, only a quarter of oil and gas companies operating in UK waters in the North Sea have any plans to invest in clean energy projects.
But the cost of investment against returns is also one of the problems of renewable energy when operated on a for-profit basis: though renewables are much cheaper per unit over their lifetime, much of the overall cost comes in the initial outlay involved in purchasing and installing the turbines and panels.
These costs have to be recouped over the 20 to 30-year lifespan of the installations and stay the same in cash terms, unlike gas, biomass and coal plants where a larger slice of the overall costs come from the labour taken to operate them. Along with the fuel itself, which can both be scaled up or down depending on demand.
A further barrier from the point of view of big businesses towards investing in more efficient technologies in energy production (or any other field) is that, in the long run, the less capitalists have to pay in wages to produce something, the less it is worth, hitting their rate of profit against the money invested. A complete removal of electricity produced from gas from the wholesale markets could lead to a fall in the wholesale and retail price of electricity due to the marginal cost pricing described earlier.
Even if wind and solar power generating capacity is massively expanded, phasing out natural gas would still require some form of backup energy source for when the sun isn’t shining and the wind drops. Leaving aside the possibility of increasing nuclear power use (with a 14-year or more wait to complete new stations), that means developing ways of storing power when there is an oversupply of electricity, to be released later on.
This could potentially be done through use of giant battery systems, or through other technologies such as using excess electricity to pump water or compress air to propel turbines when needed. Existing gas-fired and nuclear power plants already act as backup to renewables, there’s less financial incentive for energy companies to invest in scaling up zero-carbon backups to compete with them.
In addition, decarbonisation is able to be blown off course by wider economic problems caused by operating in a capitalist economy. One of the factors in the rising wholesale cost of electricity has been down to the energy producers having to pay more to borrow for investment in recent years as interest rates have shot up.
GB Energy
To try and overcome these hurdles, GB Energy has been given an overall budget of just £8.3 billion over five years towards investing in new clean energy projects (down from Labour’s original pledge of £140 billion), with only £100 million provided upfront in October’s Budget! However, even this may amount to pushing at a string as long as the grid itself is not able to support more clean energy.
As well as having the highest electricity prices in Europe, the UK has one of the most privatised and fragmented energy systems. Alongside the multitude of companies competing in the generation of energy and its sale to businesses and homes, the energy grid infrastructure that connects users to suppliers is controlled by eight for-profit monopolies covering different regions of Britain.
Only the overarching planning, including new connections and balancing of supply and demand, is controlled by the government-owned National Energy System Operator (and that only since October this year).
Due to a lack of investment in capacity, connections for new solar and wind farms to the grid are experiencing up to a 12-year wait time.
By Labour’s own estimations, £200 billion of new energy projects are currently stalled due to waiting on connections to the grid. Though as many as two thirds of these may be speculative zombie projects without planning permission agreed or the developers even having purchased the land!
Meanwhile, due to bottlenecks in the grid, during 2024 the UK has spent more than £1 billion in “congestion costs” to turn off wind farms when they have been generating more electricity than the grid can handle in their locality. And the existing infrastructure has been showing signs of wear due to underinvestment; in 2022 as much electricity was leaked from the UK network as was imported from abroad!
Not that the companies responsible have been short on cash – roughly 23% of the average electricity bill goes towards paying the ‘network costs’ of transporting electricity to homes.
National Grid has paid out over £28 billion to shareholders since it was privatised in 1990, while in 2021 the seven Distribution Network Operators (the companies who own the local power lines) enjoyed profit margins of 42.5% – among the highest of any sector of the UK economy!
On top of this, there are several other hurdles for developers of clean energy projects to clear, from waiting for planning permission from underfunded local councils for projects on dry land, to the fact that outside of China there are fewer than two dozen ships capable of installing an offshore wind farm, with a waiting list of several years.
The tangled web of UK energy production and distribution is an example of how, in a capitalist market system, attempts by governments to offer the ‘carrot’ of subsidies or the ‘stick’ of regulation to make them more sustainable will likely lead to unintended consequences, perverse incentives and businesses seeking to exploit loopholes.
Though the UK and many other capitalist countries are slowly staggering towards producing more of their electricity from renewable sources, under the anarchy of the market there is no guarantee this will progress at the pace needed to avert climate meltdown, while also providing the electricity needed to power new technology such as electric vehicles and the data centres underpinning AI and other digital services. And still less in a way that leads to lower bills for consumers, or protects the livelihoods of workers currently employed in polluting industries.
Nationalise
The profits of companies in the UK energy industry so far this decade could pay for the cost of removing fossil fuels entirely from electricity production in this country three times over.
With a national plan of energy generation, new onshore wind and solar farms could be sited in places that balance the need to protect the natural environment with generating and storing electricity close to where it’s needed, rather than simply where land is cheapest. Workers in North Sea oil and gas could be retrained and put to work expanding offshore wind and tidal energy. Training and jobs could be offered to the half a million unemployed young people in building and installing the transformers and cabling needed to connect these new developments to the grid.
But what kind of government would put such a plan in place? At the last general election, oil and gas investing hedge fund Quadrature Capital donated £4 million to Labour’s campaign, twice as much as the combined total from trade unions. This was closely followed by wind-based electricity retailer Ecotricity’s £1.2 million. Both will expect the new government not to do anything to cut across their ability to profit from selling electricity, whether dirty or clean.
Clearly bringing gas and electricity generation and distribution back into public ownership (as it was before 1986) is not going to be part of Labour’s capitalist agenda. Meanwhile, the Green Party limits itself to calling for the nationalisation of the ‘big-five’ energy retailers and ‘community ownership’ of new power generation. What is needed is a party with a programme for nationalisation and socialist planning; one which mobilises and organises the working class to challenge the capitalist system.
The threat of mass extinction from climate collapse under capitalism has fed a feeling of powerlessness and despair among large numbers of the generation who’ve grown up in the era of global warming. But the technology, knowledge and wealth to massively cut carbon emissions already exist in the world today.
What we can’t rely on is the profit-driven chaos of the capitalist market to bring these things together in a coherent and timely manner. That needs democratic planning of the planet’s material and human resources for the benefit of the whole population and environment – in other words, socialism. Don’t despair, join the struggle to make it happen.
