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Gas, Renewables, and the UK Energy Transition: A Closer Look at Costs and Security

The UK’s energy system is at a crossroads. The recent announcement by the Labour Government to soften restrictions on further oil and gas extraction in the North Sea has led to a downgrade of the UK’s climate ambition to “insufficient” (Climate Action Tracker). The Conservative opposition party have further emphasised the need to grant new licenses for oil and gas drilling as a step toward “cheap, abundant energy” and “greater energy security”.


These claims do not hold up to scrutiny, neither economically nor scientifically.

The reality is, new North Sea fossil fuels would contribute little to nothing to price reduction or energy security. The evidence is clear, and it matters deeply: this policy direction undermines the UK’s legally binding Net Zero target, weakens long-term energy security, and slows the transition to a cheaper, renewable, more resilient energy system.

Below we unpack the myths, the evidence, and the economic reality of the situation of independence, security, and cost for the UK’s energy future.


1. Myth: “Renewables inflate UK energy prices.”

Reality: In recent times, high prices have been driven by a global gas shock, not renewables.

The UK’s 2021-23 energy crisis was caused by two interlinked factors: a global shortage of gas following rapid post-COVID demand, and Russia’s invasion of Ukraine, which pushed global gas prices to historic highs. Gas prices, as part of the current market structure, more often than not set the marginal price for electricity in the UK. So as gas prices soar, electricity prices follow.

Far from being the cause of the crisis, renewables shielded the UK from deeper exposure to volatility, reducing the amount of gas needed to meet demand.


2. Myth: “More North Sea oil and gas will lower bills.”

Reality: North Sea production has no meaningful impact on consumer prices.

Research from the Grantham Institute (LSE & Imperial) outlines: 80-90% of North Sea fossil fuels are exported, the UK buys back gas at global market prices, and fundamentally volumes are too small to influence global supply or price from the quickly depleting North Sea fields. This means expanding North Sea production cannot reduce UK energy bills in any meaningful way, unless global prices take a downturn, which as can be seen in the below chart should not be relied upon:


Chart 1. Natural Gas global commodity price over time (source: Trading Economics).

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3. Myth: “North Sea fossil fuels improve energy security.”

Reality: Renewables, energy storage and efficiency provide real energy security.

Because North Sea oil and gas are traded globally, the UK is still exposed to international price spikes and geopolitical shocks. Renewables, by contrast are produced domestically, have no ongoing fuel cost, are insulated from global volatility, and through market instruments strengthen long-term price stability. This is genuine energy security.

 

1. Truth: The economic engine behind renewables: CfDs reduce protect prices

Renewable Contracts for Difference (CfDs) support protection from price spikes, and mean renewables are capped at their strike price. When wholesale electricity prices exceed the CfD strike price (the price set out at the beginning of a renewable project to provide security to investors), renewable generators pay money back, lowering bills. During the energy crisis, this mechanism delivered significant consumer savings. Renewables therefore displace expensive gas and other costlier generation on the grid (which can also sometimes be other forms of renewable) and return surplus revenue to consumers when prices spike. No fossil fuel offers these advantages.

 

2. Truth: Renewables are already cheaper and will only get cheaper

Renewables have no marginal fuel cost. Every MWh generated reduces exposure to international commodity market volatility, higher and higher marginal pricing as extraction gets costlier, and fossil fuel input costs.


Clear link between resilience and cost reduction from full renewable grids


A fascinating case study is Uruguay (among many other countries globally), running on 98% renewable electricity demonstrates how wind and solar reduce spot prices, stabilise bills, and improve resilience. The UK can mirror this success with its abundant wind (and solar) resource potential.

 

3. Truth: The North Sea’s real future is offshore wind, not fossil fuels

The North Sea is one of the world’s richest renewable resource locations, with the National Grid estimating North Sea offshore wind potential could power 120 million homes by 2030 (note: The UK has ~30 million dwellings.). This surplus opens opportunities in exported clean power via interconnectors, supply chain growth, domestic clean-tech manufacturing, European Net Zero collaboration, and new long-term employment sectors, among others. And intermittency concerns are solvable. In fact, the intermittency challenge is already being addressed through storage, flexibility, and demand-side innovation, especially when the North Sea can generate over 4x the UK’s domestic demand.


4. Truth: Consumers are not seeing the full cost benefits, yet


As Net Zero becomes increasingly politicised, it is more important than ever to communicate facts and highlight the real benefits for consumers. In the UK, we have repeatedly seen renewable energy and home-efficiency schemes blamed for rising bills, despite overwhelming evidence that the opposite is true. This misperception has contributed to significant policy rollbacks: the Energy Company Obligation (ECO), which supports home insulation for qualifying households, will effectively end in April 2026, and the Renewables Obligation will be reduced by 75% next year. The government claims these changes will save households an average of £150 per year.


Shifting costs from bills means more expensive electricity for more people in the longer term


However, when ECO+ was introduced in 2022, the government itself estimated that eligible homes could save around £300 per year through efficiency improvements, twice the saving claimed from ending the scheme. Cutting these programmes not only reduces potential long-term savings for households but also prolong the UK’s poorly insulated housing stock, keeping energy demand high and locking households into ongoing exposure to volatile fossil fuel costs. This short-term thinking risks costing UK households more in the long run and jeopardises progress towards the UK’s legally binding Net Zero target.


The data is unambiguous: since the start of the energy crisis, 53% of the rise in household bills has come from wholesale electricity costs, driven by gas. Green levies account for just 6%, and network charges around 20%, much of which reflects the cost of balancing a grid still dominated by gas generation. These facts reinforce a simple reality: the primary driver of high bills is fossil fuel dependency, not investment in clean energy or efficiency.


Market reform is needed to deliver real cost reduction from renewable deployment


The evidence in favour of continued renewable deployment is unequivocal, even if public support has softened since the energy crisis. For renewables to deliver their full economic value, they must reduce prices for the real economy, not simply be the cheapest technologies to deploy. Achieving this requires fundamental reform of how energy markets function. The UK must lead on this transition to ensure that businesses and households alike can access the genuine savings that a clean, modern, resilient energy system can deliver.


Beyond the charges on household bills, the market design itself continues to obscure the true value of renewables. Under the current system, electricity prices are set by the highest marginal generator, almost always gas. This means households do not benefit from cheaper renewable electricity when wind and solar dominate the grid, because the marginal price remains linked to gas. Although market reform has been proposed, key mechanisms such as a separate “green power pool” have been shelved. Other reform options remain under consideration, but none yet guarantee the critical step of decoupling renewable electricity from fossil-fuel marginal pricing.


In effect, an outdated market structure, designed for a fossil-fuel-based system, is determining today’s electricity prices and suppressing the consumer benefits of clean energy. Transforming this system is essential to unlocking sustained cost reductions for households.


The UK government and energy suppliers must do far more to communicate the realities of today’s energy system. Households are being told, correctly, that heat pumps are far more efficient than gas boilers. Yet many remain unsure whether switching will actually save them money, even with government grants. This confusion stems from a structural problem: while electrification and home efficiency measures are becoming increasingly effective, the price of electricity in the UK remains disproportionately high relative to gas. As a result, the most efficient technologies do not always translate into immediate cost savings for consumers, despite offering system-wide benefits.


Fundamentally, a secure, affordable system requires four pillars:

1.      Faster renewable deployment and the incentives to do so (and crucially disincentives

to invest in fossil fuels): particularly wind, solar, tidal, hydro and modern grid reinforcement.


2.      Investment in storage and flexibility: batteries, green hydrogen, pumped hydro, interconnectors.


3.      Nationwide energy efficiency: meaning lower demand, lower costs, lower exposure. This is the only route to long-term stability and affordability. Importantly, electrification is a route to efficiency, with significantly lower losses than fossil fuel alternatives.


4.      Market reform: alleviating cost by transforming the marginal-pricing approach to electricity markets that brings down the average cost of energy bills


Why we need to continue at pace with the energy transition


The risk of slowing down the transition and delaying decarbonisation means exposure to higher consumer bills, higher inflation vulnerability for the UK economy, and slower economic growth as a result.


Energy insecurity is precisely what renewable investment can alleviate over time, not to mention the huge saving on public spending for crisis support amid global market volatility shocks, climate disasters and health impacts. Expanding fossil fuel extraction prolongs UK dependence and exposure to this, while renewables investment breaks this dependency, and improves homeowner and business resilience over time.

Renewable energy generation, not prolonged fossil fuel extraction, will secure the UK’s energy future regardless of how short-term shocks are being perceived as the contrary. Change is challenging to navigate, and when the transition to a clean energy future is slowed down through lobbying and misinformation, it lands squarely on the consumer, while enabling extractive industries to squeeze the last remaining profits out of their stranded assets.


North Sea oil and gas expansion does none of these things. It weakens the UK’s Net Zero trajectory and prolongs exposure to global fossil fuel volatility.

This is how we secure affordable, reliable energy for people, businesses and the country.


Sources


Policy & analysis


Academic & expert research


Industry & system operator data

 

 
 
 

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