Renewables are More Expensive than Gas

Written by David Turver on May 21, 2025. Posted in Current News

As we discussed last week, I made a submission to the ESNZ Cost of Energy Inquiry that laid out the cost of renewables and ideas on how to reduce our energy bills.

Quite remarkably, many of the submissions to the same inquiry, from organisations that really should know better, tried to maintain the fiction that renewables are cheap. Figure 1 below (note the figures may not add exactly to the totals because of rounding) shows a summary table of the current cost of gas-fired electricity and various renewables according to the different subsidy regimes.

In the rest of the article we will look at the claims made in the evidence to the ESNZ inquiry and work through the reasoning that supports Figure 1 above. It is time to lay to rest the lies about “cheap” renewables.

False Claims of Cheap Renewables

The false claims of cheap renewables came from a variety of organisations including Department of Energy Security and Net Zero (DESNZ), energy companies, think tanks and lobby groups. First we have the submission from DESNZ that claimed “the government will be working relentlessly to translate the much cheaper wholesale costs of clean power into lower bills for consumers.” They miss the point entirely about the subsidies that must be added to the cost of renewables.

They then contradict themselves by also saying they also want to address the “price disparity between electricity and gas” because “low carbon technologies can be more expensive to run than fossil-fuel powered alternatives.”

If renewables were cheaper, they would not need subsidies and there would be no need to transfer those subsidies on to gas bills to make electricity look cheaper. We have known since the 2023 Generation Cost Report that DESNZ is delusional about the cost of renewables, but it is scandalous that they continue to make these assertions.

Next we have Ovo Energy’s submission where they claimed renewable energy is “far cheaper to produce”. Then we have the Octopus Energy’s captive think tank, The Centre for Net Zero claiming “renewables are now among the cheapest sources of electricity”. Climate change think tank E3G – where Lucy Yu, Chief Executive of the Centre for Net Zero is a non-executive director – has also made a submission where they urged ESNZ to make the most of cheap renewables.

Energy Systems Catapult thinks consumers should have access to “cheaper locally generated low-carbon electricity.” Energy UK says delivering “Clean Power 2030 and wider energy security will lead to lower energy bills” ignores the cost of subsidies and calls for households and businesses to be helped to “shift their energy use to times when electricity is cheapest and most abundant.” The Institute for Public Policy and Research (IPPR) claims “renewable generation projects that can produce electricity much more cheaply than gas” and “onshore wind and solar PV which are currently the cheapest forms of electricity generation”.

Most of these submissions only focus on the marginal costs of renewables or the wholesale price and totally ignore the cost of subsidies, grid balancing, backup and extension of the grid to accommodate remote wind and solar farms.

Finally, global energy think tank Ember thinks we should be “building alternative, cheaper sources of power such as wind, solar and other low-carbon technologies”. Ember also tells us that “gas sets the price of electricity in the GB market more frequently than any other major European power market.”

High UK Electricity Prices

Ember really ought to know better though, because their own data portal shows that UK wholesale prices are below the maximum EU price most of the time (see Figure 2).

However, for the first half of 2024 UK industrial electricity prices were the highest in Europe and the gap between UK prices and the EU was very wide indeed (see Figure 3).

If the wholesale price is set by gas, then this indicates there must be some other drivers of customer prices.

What are the Costs of Renewables?

We can explain this mismatch between rhetoric and reality by looking at the current cost of electricity across different technologies and subsidy schemes, see Figure 4 (note the figures might not add up exactly to the total because of rounding).

Starting with gas, the average market price in the Contracts for Difference (CfD) subsidy scheme has been about £75/MWh during April 2025, and this corresponds quite closely to the average day ahead price as reported by Trading Economics. This £75/MWh is made up of about £61/MWh from the cost of gas fuel and the balance of £15/MWh arises from the Emissions Trading Scheme Carbon Tax (assuming £42/tCO2 and 350gCO2/kWh). However, carbon prices are rising towards the EU price, so this component may increase, pushing up the wholesale cost.

Moving now to offshore wind that is subsidised by both CfDs and Renewable Obligation Certificates (ROCs). The current weighted average strike price for CfD-funded Offshore Wind is £158/MWh, with £83/MWh or 52% of revenue coming from subsidies in April 2025. The strike price has been increased by the inflation indexing at the beginning of April and the Neart na Gaoithe (NNG) wind farm recently activating its CfD at a current price of £162.82/MWh. The basic cost of CfD-funded offshore wind is more than double gas-fired electricity. ROC-funded offshore wind is even more expensive.

These windfarms receive the market price for their output (assumed to be the same as for CfD-funded generators) plus an average of 1.9 ROCs per MWh of output. Ofgem has set the buyout price for these certificates at £67.06/MWh for 2025/26. This puts the current cost of ROC-funded offshore wind at £203/MWh, with £127/MWh or 63% of revenue coming from subsidies. ROC-funded offshore wind costs 179% more than gas-fired generation.

Newer CfDs have been awarded at lower prices than the average today. However, as we have covered before, there is a challenge getting them built because Norfolk Boreas has had its CfD cancelled and parts of other AR4 projects have been re-bid at higher prices. The current price of the now cancelled Hornsea Project Four, awarded a contract in AR6 is £84.97/MWh. This is some £10/MWh more expensive than gas-fired electricity, even when hampered by a carbon tax. If new projects are not economic at guaranteed index-linked prices that are above gas-fired electricity prices, even with a carbon tax, then we really should abandon the idea that offshore wind is cheap.

Onshore wind is also funded by both CfDs and ROCs. The current average CfD strike price is £117/MWh with £44/MWh or 38% of revenue coming from subsidies. The weighted average market price (IMRP) for onshore wind is slightly lower than offshore wind. CfD-funded onshore wind costs 55% more than gas-fired electricity. ROC-funded onshore wind is more expensive at £141/MWh, with £67/MWh or 48% of revenue coming from subsidies. ROC-funded onshore wind costs 85% more than gas. The current strike price for new onshore wind projects awarded in AR6 is around £73/MWh.

Solar power is subsidised by CfDs, ROCs and Feed-in-Tariffs (FiTs). Several cheaper CfD units have recently come online pushing the weighted average strike price down to £77/MWh.

However, CfD-funded solar power still receives £10/MWh in subsidy because the market price for their output is lower at £67/MWh, reflecting price reductions in the middle of the day when solar output is highest. The basic cost of CfD-funded solar power is on a par with gas-fired electricity.

The current strike price for new solar projects awarded in AR6 is around £72/MWh. ROC-funded solar power receives an average 1.44 ROC-certificates per MWh or £97/MWh, pushing the cost of this form of solar generation up to £164/MWh or some 117% more than gas-fired power. We covered earlier that in 2023/24 FiT-funded electricity, which is mostly solar, cost £221/MWh or nearly three times the cost of gas-fired electricity. In reality, FiT-funded units will have received two rounds of additional inflationary increases in the FiT prices since 2023/24, making FiT-funded solar power even more expensive today.

Biomass costs us about £142/MWh for CfD funded units and about £180/MWh for ROC-funded units, assuming that technology receives the same £84/MWh baseload market price as CfD-funded units. These are respectively 89% and 139% more expensive than gas-fired power.

Extra Costs of Renewables

I can already hear the voices saying “New onshore wind and solar projects cost about the same as gas-fired electricity, so why don’t we build more of them”. The answer is in the full system costs of running intermittent power sources.

In 2024 the cost of grid balancing was some £2,529m and backup from the capacity market cost some £1,256m. The vast majority of these costs should be attributed to intermittent renewables. Before the rapid increase in renewables, grid balancing cost about £500m per year. Assuming that this might have increased to £700m/yr today because of inflationary pressures, this leaves £1,829m to be attributed to intermittent wind and solar power.

The Government’s Energy Trends data (T6.1) shows that wind and solar generated a total of 98,847GWh in 2024. Apportioning the capacity market costs and the remaining grid balancing costs to wind and solar, gives us the total costs of renewables as seen in Figure 5.

Grid balancing adds about £19/MWh and the capacity market adds another £13/MWh to the cost of intermittent renewables. The cost of CfD-funded offshore wind goes up to £190/MWh and ROC-funded units cost us a staggering £234/MWh, some 151% and 210% respectively more expensive than gas. CfD-funded and ROC-funded onshore wind costs £148/MWh and £171/MWh respectively, around 96% and 127% more costly than gas. The cost of solar power from CfDs costs £108/MWh, ROCs, £195/MWh and FiT-funded solar costs a whopping £252/MWh or 43%, 159% and 234% respectively more than gas.

Adding the costs of balancing and capacity market backup to the latest CfDs for onshore wind and solar makes them much more expensive than gas-fired electricity which is why it is not a good idea to award any more contracts. In fact, as more intermittent capacity is added, we can expect the cost of balancing and backup to rise too, perhaps faster than the rate of expansion of renewables.

And these costs do not include the extra distribution and transmission lines needed to transport this renewable power around the country, meaning these costs are under-stating the true cost of renewables.

Conclusions

We have seen above that the Government, OVO energy, proxies for Octopus Energy and various other think tanks are desperate to portray renewables as cheap. However, simple analysis of the available data on the cost of CfD, ROC and FiT subsidies, together with the costs of grid balancing and back up demonstrates that this narrative could not be further from the truth.

The data presented above on the cost of CfDs, ROCs and FiTs is not difficult to access, so they cannot claim ignorance. There appears to be a concerted, industrial-scale effort by institutions to gaslight the public and mislead Parliament into believing that renewables are cheap. This cannot be described as anything other than fraud to further the interests of the green blob determined to continue gorging on subsidies at our expense.

The ESNZ Committee members need to see through this and come to sensible conclusions about how to reduce our energy bills by following the advice in my evidence to their inquiry.

I have also created a short video to illustrate the true cost of intermittent renewables that can be found in the Multi-Media section and on YouTube. Please share widely.

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