Renewable energy keeps your bills down – but this is how to cut them even more

The relentless squeeze on our finances will continue next month when a typical energy bill will soar by £221 to a whopping £1,862 a year.

This most unwelcome rise will push millions of homes even closer to breaking point. Calls for net zero to be delayed or scrapped are never far away, and former prime minister Sir Tony Blair joined those voices a couple of weeks ago. In his foreword to the Tony Blair Institute’s The Climate Paradox: Why We Need to Reset Action on Climate Change , he writes that “any strategy based on either ‘phasing out’ fossil fuels in the short term or limiting consumption is a strategy doomed to fail”.

But the truth is that, however bad the bill rises are, things would have been even worse if it weren’t for the miles of solar panels and wind turbines that have sprung up around the country in recent years. These are providing valuable – if insufficient – protection against gas prices sent soaring by the Iran war.

This means that UK gas bills will jump by 28 per cent on 1 July, when energy regulator Ofgem introduces its next three-monthly price cap.

By contrast, electricity bills will rise by a much lower rate of 6 per cent, according to an analysis by the charity Nesta .

That gas prices have only dragged up electricity prices a little bit is a significant and welcome development. As recently as the six months from April to the end of September 2022, things were very different. Gas and electricity prices were much more closely linked, and when the Ukraine war broke out, it sent gas prices up by 100 per cent; electricity went up by nearly as much, a whopping 83 per cent.

So what has changed? The main reason is that, after a building spree, solar and wind are producing a lot more of the electricity we use today than they were four years ago – meaning that gas is being used much less.

Because it typically costs less than half as much to produce electricity from wind and solar as it does from gas, the surge in renewable energy means that the prevailing market price of electricity at any given time (which is the same for everyone in the UK, however it is generated) is being set far less often by costly gas and far more often by cheaper wind and solar.

This means that household energy bills are now partially protected from the impact of soaring gas prices – although with 84 per cent of homes still using gas central heating, the protective effect is far less than it could be if households could afford to switch to heat pumps, which run on electricity.

Electricity bills are further protected by agreements between governments and energy suppliers, known as Contracts for Difference, which set a fixed price for the renewable electricity. These are more favourable when the gas price spikes, helping to stop electricity bills rising – and the Government is pushing more generators to sign up to these fixed-price contracts by forcing them to pay higher taxes if they don’t.

But even though the effects of high gas prices on electricity prices are being curbed, electricity is still far more expensive than it should be.

It may sound surprising, but electricity prices are 3.6 times higher per kilowatt hour of energy than gas. This is actually far better than it was in 2021 and 2022, when electricity was nearly six times as expensive as gas.

But this price disparity is still a significant barrier for many people wanting to switch to electric vehicles or electric heat pumps from petrol cars and gas central heating, even though the electric alternatives are generally much more efficient to run.

Part of the disparity can’t really be helped. Electricity has higher transmission and distribution costs – high-voltage power lines, transformers and substations are more expensive to build and maintain than gas pipelines, which can transport large quantities of gas over long distances relatively cheaply.

But there is another key factor that can be addressed. Levies to support green measures and help low-income families with energy bills have mostly been put onto electricity bills, with gas bills far less affected.

The Government took steps to improve the situation with its last budget in November, when it knocked £150 worth of levies off the average annual electricity bill and funded them from general taxation instead.

However, the average electricity bill still has around £120 of levies on it, which need to come off. If they were also put into general taxation, this would bring the cost of electricity down to 3.2 times that of gas, according to the UK Electricity Bills Taskforce. And if they were put onto gas bills instead, which is possible but not likely, that would reduce the ratio further.

Given that heat pumps are typically three to five times more efficient than gas boilers at producing heat, these reductions could end up pushing thousands of households into making the switch – especially with most homes eligible for a £7,500 heat pump grant.

At the same time, continuing the wind and solar buildi…