Why have power prices fallen so little?
Director's column
6 Jan 2025
Written By Andrew Montford
Gas prices are a major driver of electricity prices. However, although gas prices have come down a lot since the peak of the Ukraine war, electricity prices are still a long way above where we might have hoped. In real terms, bills are around £183 higher than they were in mid-2020.
The figure below shows the (real-terms) breakdown of that change, based on the energy price cap data published by Ofgem.
Breakdown of change in electricity bill
The largest single item is wholesale electricity (£85). This increase is probably mostly due to gas prices, which in 2020 were around 40p/therm – perhaps 50p in current prices. Over 2024 they were around 70 or 80p and they are even higher now.
But the other increases, which are mostly attributable to green policy, account for the majority of the change. The biggest element is Balancing and Network costs (£50). Ofgem publish no breakdown of the figure, but I assume it covers the Balancing Mechanism, which is setting us back an extra billion pounds per year since 2020 (see figure below). There is also presumably the costs of new network infrastructure.
https://www.netzerowatch.com/all-news/why-have-power-prices-fallen-so-little
