The globe is increasingly electrifying everything as it moves away from fossil fuels. Even though it might benefit the environment, many people will pay higher bills. The price of energy has increased, especially in the past year, for those who do not have solar panels installed on their roof. But why is electricity now almost three times more expensive than gas and other fossil fuels?
Why is electricity more expensive than gas? The global petrol crises (yes, the two fuels are closely related) and green levies are two important ones. Do you want to know more? Let's examine why electricity costs more than gas in more detail and how UK prices stack up against those in other nations.
The Cost of Electricity and Gas in the UK
In the last year, gas and energy prices have skyrocketed worldwide, with the UK leading the charge on this problem. National Grid reports that in December of 2021, the average gas price in the United Kingdom reached an all-time high of 12.8p per kWh for seven days, more than eight times higher than the previous month. Thankfully, since then, the price has dropped to 10.3p.
Why is gas cheaper than electricity? Gas is considerably less expensive than electricity despite these high rates. See how much gas and electricity cost differently in the table below:
|
Fuel type |
Average price (pence/kWh)* |
|
Gas |
10.3 |
|
Electricity |
34 |
The table shows that the cost of electricity is more than three times that of gas.
Regretfully, this implies that those who braved the high costs of moving to electricity to cut emissions—installing heat pumps or purchasing electric car charging stations, for instance—are now facing exorbitant expenses. 2023 National Home Energy Survey indicates that 43% of British consumers are hesitant to buy green technology, probably due to this.
Why is Electricity More Expensive Than Gas?
Why is electricity going up as well as gas? Electricity being more expensive than gas in the UK can be attributed to various factors, each contributing to the overall pricing structure. Here's a more detailed breakdown:
Environmental Taxes:
Over the past decade, the UK government has implemented environmental taxes on electricity as part of its commitment to addressing climate change. The funds generated from these levies are directed towards financing renewable energy projects and reducing the nation's carbon footprint. While these initiatives are crucial for sustainability, they introduce an additional cost burden on electricity consumers, making it more expensive than gas.
Renewable Technology Costs:
The UK's electricity generation heavily relies on renewable technologies, such as wind and solar power. While these sources offer cleaner and more sustainable energy, the initial setup, maintenance, and technological advancements required for these systems can be costly. These costs are factored into the price of electricity, contributing to its higher overall expense.
Energy Mix Composition:
The UK's energy mix is diverse, combining fossil fuels, nuclear power, and renewable sources. However, the cost of incorporating renewable technologies, despite their long-term benefits, can impact the overall price of electricity. Additionally, the electricity demand has increased over the years, further influencing pricing dynamics.
Wholesale Costs:
At the wholesale level, electricity often costs less than gas. However, the retail price is influenced by various factors beyond wholesale costs. The expenses associated with environmental initiatives, infrastructure development, and maintaining a reliable electricity supply contribute to the higher retail price.
Government Policies:
Government policies are pivotal in shaping the energy landscape. Policies aimed at reducing carbon emissions and promoting sustainability, such as environmental and social obligation taxes, are designed to incentivize cleaner energy practices. However, these policies can increase consumer costs in the short term.
Is Electricity More Expensive Than Gas in Other Countries?
Global energy prices are very variable, based on supply and demand and the types of energy used to power various systems.
Nonetheless, many countries are dealing with issues comparable to the UK's: high energy costs, with electricity costing significantly more than gas. Below is a list of a few instances.
France
Electricity: 17.3p per kWh
Gas: 5p per kWh
Since nuclear power has relatively low operating costs and a long lifespan, making it particularly cost-effective in the long run, it is a significant source of electricity in France, where the average electricity price is among the lowest in Europe at 17.3p per kWh. Even while gas prices are still as low as 5p per kWh, during the winter of 2021, they had a record 12.6% spike.
Germany
Electricity: 32.16p per kWh
Gas: 9.7p per kWh
The average cost of power for German homes by the end of 2021 was 32.16p per kWh, according to the German Association of Energy and Water Industries (BDEW).
Regarding gas? Germans were spending 9.7p per kWh on petrol on average in December 2021.
America
Electricity: 14.2p per kWh
Gas: 4p per kWh
Currently, gas prices in America average 4p per kWh. According to projections made by the US Energy Information Administration, the average US electricity price in 2022 will be 14.2p per kWh, 3.8% more than in 2021. Compared to the UK, these two energy prices are far lower.
Australia
Electricity: 23.6p per kWh
Gas: 5.6p per kWh
Australians pay 23.6p per kWh on average for electricity. However, because Australia is a large country, electricity prices vary between states and even within the same state.
Like the UK, gas costs 5.6p per kWh on average in Australia, while electricity rates are relatively high.
How a Permanent Reduction in the Electricity-to-Gas Cost Ratio Could Contribute to a More Sustainable Heating Solution?
The Energy Price Guarantee provided by the government not only restrained energy expenses for homeowners but also encouraged environmentally friendly practices. It was partially achieved by lowering the ratio of electricity-to-gas prices, making the operation of heat pumps more cost-effective.
An effective strategy to enhance the electricity-to-gas cost ratio involves shifting levies from electricity bills to general taxation. The Electricity Price Guarantee has already eliminated these levies from bills, and the government should make this adjustment a permanent fixture.
Reverting to previous electricity-to-gas price ratios would impede the UK's progress in decarbonizing homes. This would encourage consumers to choose eco-friendly alternatives, such as heat pumps that rely on electricity rather than gas.
What Reforms Are Necessary?
Is electricity cheaper than gas? To expedite the decarbonization of households and achieve net-zero emissions by 2050, the government should overhaul energy bill policies to make them more cost-effective and environmentally friendly.
If electricity prices remained within 2.5 times the cost of gas, heat pumps would become more affordable than boilers over a similar lifespan, leading to a potential phasing out of boilers altogether.
This policy reform could be complemented by other changes, such as implementing a variable carbon levy on gas consumption to offset associated carbon emissions. The funds generated from this levy on gas could be directed toward assisting low-income households with their energy bills. A more progressive approach to energy bill policies could involve customers paying varying amounts based on their previous year's consumption, with the lowest rate set at zero to incentivize energy-efficient practices.
The conclusion of the Energy Price Guarantee presents the government with a valuable opportunity to modernize outdated energy policies. It is time to tailor our bills to the most beneficial for people and the planet.
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Conclusion
Why is electricity so expensive? The disparities in energy costs, remarkably the elevated price of electricity compared to gas, reflect a complex interplay of environmental taxes, renewable technology costs, and government policies. The global energy landscape is witnessing a price surge, impacting consumers worldwide. While the temporary suspension of environmental levies in the UK aims to alleviate immediate financial burdens, a more permanent solution lies in comprehensive reforms to energy bill policies.
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