Britain has the most expensive industrial electricity in the developed world, despite gas prices sitting marginally below the international median, according to a new briefing from the Institute of Economic Affairs. Renewables subsidies, hydrocarbon taxes, and hidden backup and grid costs, not gas, are the real drivers of the UK’s energy costs.
The briefing, by David Turver, energy analyst and author of the Eigen Values Substack, argues that high energy costs and collapsing industrial energy use are central to Britain’s growth slowdown. It forms part of the IEA’s forthcoming book, The Great Stagnation: Why Britain Stopped Growing.
Turver finds:
Energy is a fundamental input into a modern economy. There are no rich countries with low levels of energy consumption.
This is not a problem caused by scarce resources. Britain has pursued policies over the last 20 years that have left it with the highest industrial electricity costs in the developed world. UK gas prices are actually marginally below the International Energy Agency median, so gas is not the driver.
Renewables subsidies, taxes on hydrocarbons, and hidden backup, grid balancing and expansion costs have been the major structural factors behind rising prices. The total cost of net zero and energy-related subsidies is estimated at £585 billion.
High energy costs and regulation have contributed to a dramatic drop in consumption. UK energy consumption is down 29.2% from its 2005 peak, and industrial energy consumption has fallen even more rapidly, down 45.3% since its 2004 peak.
Any analysis of the UK’s growth slowdown that does not factor in higher energy costs and lower consumption is bound to be woefully incomplete.