Why are energy prices rising in the UK, and can renewable energy actually make bills cheaper?
This question is becoming increasingly urgent as global oil and gas shocks drive energy price volatility in the UK.
The UK’s transition to Net Zero is an environmental necessity. Increasingly, however, it is also an economic and strategic imperative, particularly in the context of fossil fuel price volatility.
The March 2026 supplementary analysis accompanying the Seventh Carbon Budget from the Climate Change Committee underscores this point. It shows that a decarbonised energy system is structurally more stable and less exposed to global shocks than one reliant on fossil fuels.
At the centre of their analysis is the Balanced Pathway, the CCC’s cost-effective route to achieving Net Zero between 2025 and 2050. This pathway models a transition away from fossil fuel dependence towards electrification and domestically generated renewable energy. It also demonstrates that such a transition is economically viable and beneficial.
The pathway begins delivering net benefits from 2029 and achieves net cost savings by 2041. These gains are not limited to emissions reductions. They include improved energy efficiency, reduced operating costs, and broader societal benefits like better air quality and public health outcomes. Crucially, the pathway also addresses how to reduce energy bills in the UK by limiting exposure to fossil fuel price shocks.
Why Oil Shocks Drive Energy Price Volatility in the UK
The UK’s energy markets remain deeply entangled with geopolitics. The report underlines this:
“Fossil fuel prices are highly volatile, and driven by international commodity markets that can fluctuate sharply in response to geopolitical events, supply constraints, and global demand shifts. A system that relies heavily on fossil fuels is therefore exposed to significant price shocks and heightened risk to energy security.”
Recent global events have illustrated this vulnerability. Fuel price spikes have had cascading effects across the UK economy, driving inflation, increasing public debt, and placing pressure on households and industry. These dynamics sit at the heart of why fuel prices are rising in the UK.
The CCC’s modelling underscores the scale of this risk. Continued reliance on gas would leave the UK “over 40% more exposed” to price spikes in the late 2020s compared to a Net Zero-aligned pathway. This exposure doubles in the 2030s and becomes five times greater by the 2040s. This volatility could increase public debt by as much as 13% of GDP by 2050.
The current electricity market structure amplifies this exposure. Because gas frequently sets the marginal price of electricity, fluctuations in gas markets directly translate into higher energy bills. The report notes:
“In the current system, electricity is often generated by gas. Therefore, electricity cost uncertainties are closely linked to the uncertainty on gas costs.”
This structural linkage is already being felt by consumers as costs rise.
How Gas Prices Set Electricity Bills in the UK
This linkage is a central driver of energy price volatility in the UK. Analysis reported by The Guardian highlights how deeply embedded gas is in UK electricity pricing. Despite generating only around a quarter of electricity, gas set the price 85% of the time in 2024.
This means even lower-cost renewable energy is priced at the higher marginal cost of gas. As geopolitical tensions push gas prices upward, UK households face rising bills regardless of the growing share of renewables in the system.
A report by Common Wealth suggests that reforming this pricing mechanism could reduce household energy bills by up to £203 annually.
Reducing exposure to fossil fuel price volatility requires both structural market reform and systemic decarbonisation.
Can Renewable Energy Reduce Energy Bills?
The CCC’s analysis shows that clean energy can reduce costs, but only within a system that reduces reliance on fossil fuels.
In a fossil fuel price spike scenario, operating costs in the baseline (high-carbon) system increase by around 70% in the year of the shock. Under the Balanced Pathway, the increase is limited to approximately 20%.
This is because domestically generated renewable energy is not subject to the same geopolitical and commodity market pressures as oil and gas.
Under the Balanced Pathway, by 2040, the report projects:
“Renewables have replaced much of the gas in the electricity supply sector… reducing exposure of the electricity supply system to a spike in fossil fuel prices.”
In effect, the transition to clean energy acts as a hedge against global volatility, insulating both consumers and the wider economy.
The benefits are amplified when considering long-term economic value. Under fossil fuel price spike conditions, the net present value of the Net Zero transition increases significantly, reaching up to £2.46 trillion, with a higher benefit-cost ratio. Put simply, this means that the more volatile fossil fuel markets become, the stronger the economic case for clean energy gets.
Why Energy Storage Is Key to Stable Energy Prices
A decarbonised energy system must be flexible, reliable, and capable of managing intermittency. This is where energy storage becomes indispensable.
Ofgem emphasises that LDES “will play a key role in Great Britain’s grid expansion,” enabling excess renewable energy to be stored and deployed when needed. This capability addresses one of the core challenges of renewables: their natural variability.
Without sufficient storage, surplus wind and solar generation is curtailed, while gas plants are brought online during periods of low renewable output. This not only wastes clean energy but exposes the UK to volatile international gas markets.
LDES technologies smooth these fluctuations. By storing energy during periods of high generation and releasing it during shortages, they reduce reliance on gas peaking plants and enhance overall system stability.
Ofgem’s support for large-scale storage deployment with the cap-and-floor investment scheme reflects the strategic importance of LDES infrastructure. Out of 171 applicants, Storelectric’s TeesCAES project is one of 77 to pass the eligibility phase, and the only CAES project to do so.
The Climate Change Committee reinforces this:
“Significant investment in electricity generation, storage, and network infrastructure is required… to enable widespread electrification.”
This investment is foundational to enabling a resilient, low-cost energy system.
Energy Price Volatility to Long-Term Cost Control
The transition to clean energy is often discussed in terms of emissions targets and environmental responsibility. Yet the economic argument is increasingly compelling on its own terms. A fossil fuel-dependent system is inherently volatile, externally driven, and strategically vulnerable.
By contrast, a renewables-based system, supported by robust storage and modernised infrastructure, offers stability, predictability, and domestic control. It reduces exposure to geopolitical shocks, lowers long-term costs, and strengthens energy security.
If executed effectively, the transition will do more than decarbonise the economy. It will fundamentally reshape the UK’s energy system from one defined by global price shocks to one anchored in resilient, home-grown power.
