Overcharged: Why are energy bills so high?

Like many other families around Scotland, the Millers – Madeline, James and their two children, aged seven and nine – work hard to keep their power bills to a minimum.

They only run the washing machine at off-peak times, only use energy-saving lightbulbs and conscientiously unplug any devices that aren’t being used.

They’ve also turned down the heating and, when the cold weather bites, pile on extra clothes and unpack their thick blankets and hot water bottles.

Yet the cost of power for their semi-detached home in Livingston, West Lothian, is still £2,500 a year – which, even though they are both in full employment (she’s an academic writer, he works in construction), is a significant chunk of the couple’s income.

“Rising costs have been hard to manage,” Madeline, 38, said. “We were always careful – but we’ve had to make substantial sacrifices, by reducing spending on other essential items. In the winter months, the electricity bill becomes particularly worrisome.”

And the Millers aren’t the only ones who are worried. According to a recent government report, energy prices are now the single biggest concern for Scotland’s households – with 31% stating electricity costs are a more pressing threat in 2025 than even terrorism, war, unemployment or ill health.

Official statistics published last month also showed a fifth of Scottish homes – around 491,000 – are in “extreme fuel poverty”, meaning more than 20% of their income, after housing costs, goes on fuel.

Today, new research for The Sunday Post reveals the best deals on the market – with considerable savings to be made by switching suppliers.

But even with the cheapest tariffs, many families will still be asking: Why IS our electricity so expensive? And with fresh warnings last week that bills are set to soar even higher, could anything be done to actually bring prices down?

Why are bills so high?

Experts believe the main reason for high bills is that much of the UK’s electricity is still generated from gas-fired power stations, with gas prices at near-record levels thanks to global instability caused by Russia’s invasion of Ukraine.

Professor Richard Green of Imperial College Business School said: “For years, the price of domestic electricity was gradually going up – but then, in 2022, it basically exploded.”

To fully appreciate the increase, consider a single unit of electricity – also known as a kilowatt hour (or kWh). One unit powers a 100-watt lightbulb for 10 hours – or a fridge-freezer for 26 hours.

In 2007, a unit in the UK cost 10p. But according to the International Energy Agency (IAE), by 2023 it had more than trebled to 36p – with British homes paying more than anywhere else in the EU or G7 countries.

In France, for example, a unit in 2023 cost 21p, while in Sweden it was 18p. Incredibly, in America the cost was just 13p a unit.

Professor Green explained that 30% of Britain’s electricity comes from wind farms – including the UK’s largest onshore farm at Whitelee, outside Glasgow, and the Beatrice offshore farm, eight miles off Scotland’s north-east coast.

Meanwhile, 14% comes from nuclear power stations, such as Torness in East Lothian.

However, 25% of the UK’s electricity still comes from gas-burning power stations – such as the massive plant in Peterhead, Aberdeenshire. With a decline in production from the North Sea, Prof Green said the UK was forced to rely on expensive imports.

He said: “We buy a lot of ­liquefied natural gas from the US, Algeria and Qatar. It’s expensive because it needs to be cooled and shipped. And, to make it worthwhile for those countries to sell it us rather than China or someone else, we have to pay a higher price.”

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Other countries, by contrast, are less dependent on gas. France generates 70% of its electricity from nuclear, while Sweden generates 96% from a mix of hydro schemes, nuclear and wind.

Meanwhile, in the US, electricity generation continues to rely on gas – but supplies are met by fracking. The controversial drilling process, also known as hydraulic fracturing, has sparked a fierce debate about environmental damage – but means Americans enjoy far cheaper power.

Prices for electricity in the UK are also kept high by a complex bidding process that determines how much retail companies (the companies that supply our homes) must pay to the power-generating companies.

Auction houses estimate how much electricity Britain needs on a given day (typically around 736 million kWh) then ask generating companies how much they can produce at what price.

The auctioneers start by ordering the cheapest power (from wind farms, which don’t cost much to run) then top up, as needed, from other sources such as nuclear, before finally turning to the most expensive, the gas power stations.

The wholesale price – which is then applied to every unit purchased by the retail companies – is set at the price paid for the last unit needed to meet demand, ie the highest.

Some argue this ensures gas power stations – a vital fallback for keeping the lights on even if turbines stop turning because of a lack of wind – remain financially viable.

But critics argue reforming the competitive pricing system – while also increasing output from renewables – would help reduce sky-high household bills.

Richard Neudegg, director of regulation at price comparison service Uswitch.com, said: “UK electricity prices are heavily influenced by the global wholesale cost of natural gas, as gas-fired power stations provide essential generation flexibility during periods of high electricity demand.

“Over time, reducing the grid’s reliance on these stations and reassessing how wholesale pricing works in the market could be key to driving prices down.”

Huge profits

Meanwhile, energy firms continue to make enormous profits, with the UK’s biggest suppliers – British Gas, Scottish Power, OVO, Octopus, EDF and E.ON – raking in more than £11bn from their global operations last year.

Since 2019, the UK energy regulator Ofgem has imposed a price cap, which sets a maximum rate per unit and standing charge that can be billed to customers for the energy they use.

The cap is reviewed regularly and currently means a family in a three- or four-bedroom house with average fuel use should pay no more than £1,738 per year for gas and electricity.

However, last week energy analysts predicted the cap could rise by up to 5.7% when it is next reviewed in April.

And for families like the Millers, that can only mean an even greater strain on family finances.

Madeline said: “It’s absolutely ridiculous. Our nation produces so much energy but we pay some of the highest energy prices worldwide. We need better price ­controls, support programmes for families in need and renewable energy investments that help households instead of big companies.

“Energy is a fundamental requirement but it’s priced like an extravagant commodity.”