As Britons struggle with soaring energy bills, the Labour government faces pressure to deliver on its clean energy promises. Once among the cheapest in Europe, UK electricity prices have now surged past most EU nations, trailing only Germany, Denmark, and Ireland. Between 2022 and 2023, UK consumers saw some of the fastest price increases, with relief arriving later than in most of Europe. As the UK’s energy demand rises by 65% over the next decade, the Labour government has pledged to achieve zero-carbon electricity by 2030. But are these policies enough to lower costs, ensure energy security, and meet the ambitious climate goals? This article critically examines the energy crisis and the Labour government’s response, evaluating its strengths, limitations, and long-term impact on British households.
Energy prices are a headache for Starmer
The October to December 2024 price cap consists of:
- 43% wholesale costs of Energy
- 22% network costs
- 13% operating costs
- 11% policy costs (levies to support low carbon generation, energy efficiency, and vulnerable customers)
- 5% VAT
- 5% assumed suppliers (profit) margin
- 4% other costs.
Customer debt stood at a record £3.7 billion in June. The average household in arrears owes over £1,500 and £1,300 on electricity and gas, respectively. Suppliers are committing hundreds of millions of pounds to support consumers with advice and funding.
Energy crisis and the Labour government’s response
The Labour government, led by Sir Keir Starmer, immediately unveiled ambitious Energy and climate goals that would “make Britain a clean energy superpower” within a remarkably short time. These plans would “cut bills, create jobs and deliver security with cheaper, zero-carbon electricity by 2030, accelerating to net zero,” Prime Minister Starmer’s government argues that those objectives are closely intertwined. A zero-carbon electricity system would lower bills “for good” and prevent citizens from ever again being “vulnerable to dictators like Putin.”
Additionally, the UK plans to set up a new state-owned company—great British Energy, which will be capitalized with GBP 8.3 billion. Headquartered in Scotland, the company will partner with industry and trade unions to deliver clean power by investing in leading technologies. It supports capital-intensive projects and deploys local energy production. Beyond the high-level descriptions, however, the company’s remit remains vague. Another new institution will be set up. the National Wealth Fund, aiming to “unlock billions of pounds of investment in the UK’s world-leading green and growth industries.” While the Labour government’s response to the energy crisis is ambitious, its effectiveness will take time to unfold, and only time will reveal the true impact of these policies.
The UK’s primary energy and electricity mixes have undergone a remarkable transformation.
The Labour government’s current efforts may seem novel or disruptive. They are an attempt to accelerate an existing trend. The UK was the birthplace of coal power, which fueled the worldwide industrial revolution. However, after 142 years of coal use, on October 1, 2024, the country officially closed its last coal-fired power plant. It is a unique milestone among the world’s largest economies. In that respect, the Labour government’s decision to not grant new coal licenses will not make any difference. The energy crisis and the response of the Labour government is an ongoing process.
To achieve its ambitious clean energy target by 2030, the UK should eliminate all fossil fuels from its mix – primarily natural gas. It accounts for over a third of the country’s power generation. At the same time, natural gas helped to crowd out coal over decades. Today’s question is which other fuels could replace natural gas in less than six years. Only four countries worldwide produce almost 100 per cent of their electricity from renewable sources: Albania, Bhutan, Lesotho, and Nepal—each with only a fraction of the UK’s population and economy.
Energy prices
Under the October to December 2024 direct debit price cap, the average annual bill for typical gas and electricity consumption is £1,717. This is well below the peak of £2,380 under the Energy Price Guarantee from October 2022 to June 2023. It is still 41% higher than in Winter 2021/22. The price cap will rise by 1% to £1,738 in the first quarter of 2025. It is expected to fall by 1% in the second quarter of 2025.
Under the current direct debit cap, the average gas price is 6.2 pence per kilowatt hour (p/kWh). The average price of electricity is 24.5 p/kWh. Average standing charges are 31.7 p/day for gas and 61.0 p/day for electricity. The average gas price under the direct debit cap will rise to 6.3 p/kWh in January 2025. the average price of electricity will increase to 24.9 p/kWh. Average standing charges under this cap will remain the same. Gas prices in the UK were 22% below the EU average. Electricity prices were 27% above the EU average in the first half of 2023. The ratio of electricity to gas unit prices in the UK was higher than in any EU country.
A key element of Labour’s manifesto is the creation of GB Energy.
GB Energy will not supply Energy directly to households but will work with private sector entities to invest in emerging energy technologies. It ensures their competitiveness with more mature energy generation methods. Those mature technologies include onshore wind, solar, hydrogen, and nuclear. By committing to reinstating the 2030 ZEV targets that the Conservatives reneged on, Labour has set out its stall on electric vehicles. This is one of the signs of the Energy crisis and the Labour government’s response. It promises to support the aggressive target of ensuring. 80% of new cars and 70% of new vans sold will be zero-emission by 2030, rising to 100% by 2035.
Every family and business in the country has paid the price of Britain’s dependence on foreign fossil fuel markets, which was starkly exposed when Ukraine’s crisis initiated. British energy customers were among the hardest hit in Western Europe, with bills reaching record heights. In response to the energy crisis, in 2021, Ofgem and (the then) Department for Business, Energy and Industrial Strategy (BEIS) recommended the creation of an independent and publicly-owned body to implement a whole-system approach to UK energy. In a significant shift towards public ownership, the Energy System Operator (ESO) – part of the National Grid – will be replaced by a publicly owned and fully independent National Energy System Operator (NESO). Set to launch later this year, NESO will work to facilitate net zero and oversee upgrades to create a resilient, sustainable, and affordable energy system for the future. This shift exemplifies the energy crisis and the Labour government’s response.
