New research from thinktank Nesta shows that surging wholesale gas prices have driven the substantial majority of recent increases in UK household energy costs, with implications for ongoing policy debates around energy and climate targets.
According to the analysis, wholesale gas costs account for approximately 90% of the rise in electricity bills experienced since 2020, alongside 77% of increases in gas bills. These findings directly challenge a narrative that has gained prominence in UK media and political discussions attributing high energy bills to net-zero commitments. Nesta’s director for sustainable future emphasized that renewable energy policies and net-zero initiatives are actually reducing electricity bills by around £17 under current price cap arrangements, while government cost-cutting measures have further reduced policy expenses by shifting support mechanisms toward general taxation and temporarily removing VAT.
The timing of this analysis is significant given current global energy market conditions. As of mid-October, UK wholesale gas prices reached 220 pence per therm, marking levels unseen since Russia’s 2022 invasion of Ukraine, with ongoing Middle East conflict contributing to sustained price pressures. A typical household’s annual dual-fuel bill has increased from £1,175 in October 2020 to £1,723 in October 2026, a 47% rise in real terms, with approximately 81% of this increase attributable to wholesale cost movements.
Network infrastructure costs represent the second-largest component of bills, having risen £127 in real terms since 2020. However, costs specifically related to balancing renewable energy generation and managing wind constraint payments account for only £35 of annual household bills despite receiving substantial media attention. Government social and climate policies, which comprised 16% of typical dual-fuel bills in October 2020, have declined to 7% of bills under the current price cap as of October 2026.
Expectations indicate that bills may rise sharply under the January 2027 price cap, potentially increasing by as much as 25%, reflecting continued high wholesale gas prices. Government officials are reportedly considering measures to assist households and businesses ahead of budget announcements scheduled for later in October.
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