The mess that is the UK energy system — and how it ended up this way
As Britain faces rising bills alongside the need to decarbonise, one industry expert blames botched privatisations — but another plays down climate change and the value of renewables
Britain’s energy system is outdated, unfit for purpose, dangerously exposed to global markets and so expensive that it is hammering family finances and decimating industries across the country.
So go just some of the criticisms of the way in which one of the world’s largest economies powers itself. Protests have multiplied in recent weeks as householders brace for expected energy bill price rises this winter, driven largely by the way the Iran war has disrupted global gas supplies.
The complaints are not all fair. Similar gripes abound in other countries that are trying to remodel networks built for fossil fuels into clean, reliable and affordable energy sources.
That is no comfort for Andy Burnham, the latest UK prime minister to confront a question that his predecessors have struggled to answer: how did the birthplace of the industrial revolution and the home of a widely imitated power system get itself into such bother? And what is the best means of escape?
Two new books offer provocative answers, starting with Power and the People, a history of the UK’s energy systems since the 19th century by Arthur Downing.
Downing makes a persuasive case for overhauling a system struggling with the legacy of privatisation and the need to decarbonise. His ideas are not all academic. This month, he joined the UK energy department after a stint as a strategy director at Octopus Energy, the green power-promoting group that became the UK’s biggest home energy supplier last year, just nine years after its market launch.
Octopus is a success story in a sector that is, in Downing’s words, “fragile, fragmented, comically complicated and hopelessly dependent on imported fossil fuels”.
He identifies one culprit as the 1980s sell-off of industries that once delivered a “technologically sublime” era of power stations and energy networks, built at breakneck speeds faster than even China manages today.
Exhibit one: between 1929 and 1934, the state-owned Central Electricity Board constructed the UK’s and world’s first national grid, a network more than 3,000 miles long, for £1.9bn in 2024 prices. Today, Downing writes, the UK’s three private sector electricity transmission companies hope to build just 620 miles of high-voltage grid between 2025 and 2035 for close to £20bn.
State-controlled bodies also managed to convert improved system efficiency and more capacity into lower prices. The price of electricity tumbled between 1920 and 1940. And the state was powerful enough to take on vested interests that would have blocked emerging technologies such as nuclear power.
Privatisation, on the other hand, promised spectacular efficiency gains that did not materialise and lower power prices that proved fleeting. Electricity prices began to rise in 2003 and by 2009 were 17 per cent higher than in 1990, when power companies had been privatised.
The British model was nonetheless exported around the world. The World Bank advised that it was an ideal to which governments should aspire.
Then climate change added fresh complications. By the early 2000s, plans to replace fossil fuels with a slew of wind farms and grid upgrades were under way in a privatised system that was good at sweating infrastructure assets, not building more of them.
To lure companies to invest, the UK spent billions on subsidies in another pattern that was repeated around the world. Globally, Downing writes, 80 per cent of big renewable power plant capacity due to be built between 2024 and 2030 is on some form of subsidy.
In the UK, successive green reforms were layered on to a system that continued to be underpinned by private ownership, a lot of it in overseas hands. Much as IT experts try to fix bugs with patches that end up making the whole system worse, this has produced what Downing calls “a process of zombification that has left the energy industry a dysfunctional hybrid”.
Its flaws have been exposed by the soaring gas prices driven by Russia’s 2022 full-scale invasion of Ukraine. Government support measures cost taxpayers at least £40bn, most of which went to oil and gas companies.
So what to do? Downing urges a radical rethink of an approach that he says is in some ways more extreme than anything attempted by the UK’s older nationalised energy industries. It involves a centrally planned system, designed around private sector companies, in which the state liberally de-risks investments.
Labour ministers have pledged to create a clean-power electricity system by 2030 while bringing down bills. Downing thinks the upshot might be cost savings, but there is also “a nightmare scenario” where bills stay high and infrastructure projects are not delivered on time or on budget.
He proposes neither full-fat nationalisation nor privatisation, but what he calls a mutualised energy system that shifts the focus of policies away from subsidising producers towards citizens.
He would partly or fully nationalise natural monopolies to exploit the state’s lower cost of capital, starting with gas-fired power plants that are subsidised to supply power when needed and to back up renewables. Putting them in state hands would reduce bills by ending those subsidies, he says. And since gas so often sets the price of electricity, it would make sense for the state to be able to control the price of generation from gas.
State ownership or control over offshore wind and long-term storage projects would also help, Downing argues, as would a measure of decentralisation.
Burnham’s September announcement of Great British Grid, a new government body to invest in the electricity grid, is a step in Downing’s direction and many would agree with his book’s ideas.
It would take a brave government to enact all of them, however. And an even braver one to follow the disorienting prescriptions in a second book, Climate Realism by Oxford economist Dieter Helm.
Helm and Downing know each other well. Each has called the other’s book a must-read. Yet Helm offers a very different analysis of the UK energy system in a book that largely aims to skewer the feebleness of international efforts to manage climate change.
He singles out the UK because, in his view, successive British governments have made it a poster child for addressing global warming and “an object lesson in how not to do it”. For Helm, the UK exemplifies a misguided “climate community” with a utopian faith in proven failures such as UN climate change conferences (COPs), flawed net zero targets, unproven climate tech and, above all, expensive renewables.
One chief target: the cost of the infrastructure required to integrate intermittent renewables into a system designed for fossil fuels delivering more constant electricity supply.
Renewables will invariably raise the risk of power outages, he claims, because they lack the built-in ability of gas and coal power stations to help manage power frequency. This will in turn encourage “lots of businesses and public services” to install “considerable” standby generation, mainly powered by gas, he adds. Battery storage could ease the problem, but it adds more costs, and is, Helm argues, an “environmental nightmare”.
The electricity the UK imports from Europe will also help, he says — though a renewables-dominated system will need this power on the same dark, cold winter days that it is required in northern Europe, meaning prices will be higher.
There is much to quibble with here. The UK, unlike other countries with a growing share of renewables, has in fact installed significant infrastructure to help prevent blackouts on a greener grid. The environmental costs of making batteries are outweighed by the cost of burning the fossil fuels they replace.
Helm is of course correct to say that renewables are not necessarily as cheap or simple as some of their proponents claim. And some of his other criticisms about the wider effort to address climate change are also true, though hardly novel. Fossil fuels do still dominate the global energy system. We are indeed living beyond our environmental means.
But the question of how the UK or any other country should deal with this is where Helm’s book grows seriously confusing.
Consider his criticism of the cost of managing intermittent renewables with gas power station “peakers”, ready to run at short notice but mostly idle. “Much of this would not be necessary at all with conventional power systems,” Helm says, meaning nuclear or fossil fuels. However, he repeatedly advocates cuts in the concentration of carbon dioxide in the atmosphere, which requires precisely the sharp falls in fossil fuel use that his detested “climate community” seeks.
So what non-utopian solutions does he suggest? First, he thinks countries could behave like a “virtuous, unilateral altruist” and decarbonise of their own volition. “It could be that a country decides it no longer, unilaterally, wants to be causing climate change,” he says. Right. It could be that I win the lottery 10 times in a row next month too.
He also champions a carbon tax. Economists have long urged measures to put a price on carbon that are highly desirable in theory but in reality have proved as inadequate as other climate policies that Helm scorns, and more so.
After more than 40 years of pricing efforts, the global average carbon price lies at just $21 a metric tonne of CO₂, far too low to spur significant emissions cuts.
Both carbon prices and renewables growth might be even lower if the need for decarbonisation had not been normalised by climate COPs and other efforts that Helm derides.
To bolster his wider argument, he also berates the climate movement for being too silent about the alleged benefits of climate change, such as longer crop-growing seasons and fewer deaths from the cold, and downplays the effect of warming.
Low-lying islands may have to be abandoned as sea levels rise, but “depopulation is a threat anyway”. “Heat is already a problem” in the tropics, he adds, failing to mention that this is where more than 40 per cent of the global population lives today.
That is one of many inconvenient facts that Helm omits in a book that is ultimately disappointing and, despite its title, highly unrealistic. This is a shame. Making clean energy affordable to help manage climate change is one of the great challenges of our age, in the UK and beyond.
Arthur Downing makes a useful contribution to addressing the dilemma. The more analysts who can follow his example, the better.