The US-Israeli war on Iran has wrought havoc on global gas markets. It’s just the latest shock in the energy world after the 2022 Russian invasion of Ukraine similarly sent gas prices soaring to several times pre-Covid levels. Back then, the impact of gas in driving electricity prices amplified the macroeconomic shock and inflation; energy bills rose to the top of the political agenda and Liz Truss’s desperate policy response helped finish off her brief time in office.
As that crisis subsided, a new narrative about energy bills emerged: that high prices were increasingly due to the cost of transitioning away from fossil fuels. Reform UK championed climate scepticism. The Tories tried to soothe their warring factions by saying that a 2050 net zero target was too soon, while acknowledging that it is required to stabilise the atmosphere. In Labour, Ed Miliband continued to push for the UK’s ambitious climate goals but became the chief bogeyman for much of the right-wing press, and found himself under pressure on all sides. Meanwhile, the Tony Blair Institute (TBI) added fuel to the fire by saying in 2025 that the world should shift its “focus and resources” from renewables (highlighting nuclear and carbon capture for fossil fuels); and in February 2026 by declaring that the UK’s Clean Power goal for 2030 was too ambitious, too soon, and getting in the way of longer-term reforms. Again, the implication was that the move away from gas should be slowed.
Then came the Iran war, which has once again driven up oil and gas prices and inflation, adding to the strain on household budgets—including the two million UK families struggling with energy debt totalling around £5bn. Projections for bills from July onwards have shot up—in some cases by 22 per cent for gas and 7 per cent for electricity. The pause in fighting declared on 8th April has brought only limited relief and may not last, while damage to energy infrastructure in the Middle East, and heightened costs and risks, are already baked in to future energy prices.
Alongside arguments about whether the UK should reopen licences for drilling in the North Sea, the crisis has reignited debates about the pace of the clean energy transition and whether our electricity system is fit for purpose.
The case for maintaining a rapid energy transition towards renewables is strong. A renewables-led system has every possibility of ultimately being cheaper while protecting us from such shocks. For many countries, solar power now generates the cheapest electricity in history. In many locations electricity generated by wind is just as cheap as that from fossil fuels. There has been dramatic progress also in batteries and electric vehicles. The cost of solar—globally, the most abundant energy source, especially in most developing countries—has continued to fall, and investment continually outstrips projections.
By 2030, wind and solar together will provide close to 30 per cent of global electricity supply, up from less than 10 per cent in 2020—progress made in less time than it typically takes to contract and build a nuclear power station. Meanwhile, carbon capture and storage (CCS), often touted as a way to ease the climate crisis while continuing to burn fossil fuels, is the one technology which is guaranteed to add costs to fossil fuel power generation. It has seen minuscule deployment in the 30 years since it was first touted as the solution.
Still, energy shocks like the one that is now unfolding inevitably bring calls to reopen licencing for North Sea oil and gas. The arguments on this are well rehearsed. The idea that it will reduce gas prices is particularly problematic: the rather modest additional volumes would be sold on the international market, unless the government forced companies to sell at a lower price to UK consumers (which would hardly attract investment into relatively costly fields in a sharply declining gas province). Perhaps the most fundamental issue is that with still-declining output, new licencing could only defer the need for more fundamental change.
And yet, if the arguments for a rapid energy transition are stronger than ever, why is the politics so difficult? There are both crude, and subtle, answers.
The crude answer is fossil fuel money. The US oil industry has for decades been brazen in its efforts to stymie progress to reduce fossil fuel dependence. Until 2022, European companies had been more balanced, or wary, with the CEOs of Shell, BP and Total all accepting the seriousness of climate change and making efforts to diversify. But the Russian invasion of Ukraine blew all that away.
Within that single year of eye-watering prices, the profits of the global fossil fuel industry soared to over $1.2 trillion—including about $500bn of “supernormal” profits above expectations at the beginning of the year. Some CEOs of European oil companies were forced out as shareholders demanded to know why they were dabbling in green energy when there were such profits to be made from the “black gold”. And $500bn of unexpected additional profits buys an unimaginable amount of lobbying power; a similar amount was reported as being spent on lobbying the previous US congress, and about $100m supporting Donald Trump’s 2024 election campaign.
But far less obvious factors are at play too. For one, the weirdness of the UK electricity market masks the potential benefits of renewables.
Our energy prices are among the highest in the world—strongly influenced by our exceptional dependence on gas, born of the era before the UK’s North Sea basin became mostly depleted. Not only do most homes have gas heating, but gas drives the wholesale price of electricity to an almost unique degree. Other costs make up an increasing share of overall bills too, but are added almost entirely to electricity (not gas). By January 2026, electricity was more than half the average “household dual fuel” bill (not including fuel for cars or other vehicles).
Those prices foster the growing opposition to the renewables transition. The 2026 TBI report argued that the government objective of “Clean Power 2030” should be replaced by “Cheaper Power 2030”. That beguiling headline is problematic not solely because of the new gas crisis; commodity price inflation since 2022 has made everything more expensive. Earlier this year the price of new offshore wind cleared at a price of 9.1p/kWh—which is break-even with wholesale prices, and a third of what households pay (about 25p/kWh). The cost of onshore wind and solar, not surprisingly, came in cheaper still—around 7p/kWh. Even before the Iran crisis, the UK government’s latest report on electricity generation costs estimated the cost of new gas plants to be far higher.
Yet the reality is that the strides made in renewables over the past decade are wholly invisible to most consumers. All they see is the intrusion of wind farms, solar panels and transmission lines. The market renders potential cost-savings almost invisible, and makes it all but impossible for consumers to benefit from local infrastructure. So why would consumers support wind or solar if they aren’t benefiting from its competitive costs? And why would they not be confused by eternal and increasingly politicised arguments over what are the real costs? Miliband’s remonstrations about the cheapness of renewables fall on deaf ears if consumers cannot touch it.
If the complexity and opacity of the system is the second problem, the third is the apparent impossibility of reform. Getting the transition going in the 2000s was not cheap, and consumers are still paying some of the legacy costs in their bills. But the real problem is that we retain a complex market that was designed around fossil fuels, which still largely set the price. The costs of past investment and the investments for the future are both bundled on top.
We are effectively paying for two radically different electricity systems at the same time. The old system is based on big power stations fuelled through commodity trading of fossil fuels—a sector in which continuing investment is required just to replace depleting fields, and major supplies rely on concentrated resources in a market increasingly determined by oligopolies and geopolitics. Yet this still dominates our wholesale electricity price.
The emerging system, which uses predominantly fixed assets running on free, domestic and renewable energy, should in principle be cheaper and offer more stable prices. However, this takes both investment and an efficient market structure matched to the task, something which the government has so far seemed incapable of delivering.
Major reform itself is a major political challenge, even with a small “r”.
The fundamental question then remains whether the government’s plan for “Clean Power 2030” can contribute to the goal of “Cheap Power 2030”, or whether it is inimical to it. The real answer is: it depends.
In principle, the ambition to largely decarbonise the electricity grid by 2030 will reduce our dependence on gas and increase the availability of power derived from non-depleting resources, paving the way for faster and cheaper electrification. Strategically, it should be a winner.
But doing that efficiently will require major reforms. In 2021, a review of the electricity market arrangements (REMA) was launched, predicated on the recognition that the current structure is not fit for a renewables-dominated future. Four years later, the government that inherited the review produced a mouse, dispensing with almost every option for major change offered.
Far more than vested interests were at play. Vested mindsets in the existing structures made everyone afraid of change. The review was focused on the main production systems (there was a separate review for retail consumers). Proposals for dual market structures—enabling consumers to access electricity at a cost directly reflecting renewables, rather than going through the gas-driven wholesale market—were dropped even before Labour came to office.
Under Labour, the debate fixated on a huge battle of whether to reflect the local economics of renewables through “zonal pricing”—different wholesale prices in different regions. Most economists thought it made obvious sense, but Downing Street faced intense lobbying across almost all industries, including from those that probably would have benefited but remained unsettled by change. A government full of ambition became scared of any major structural reforms, fearing it would undermine investment—and in the end decided against.
The battle sucked all energy away from other possible reforms, leaving little more than a vague notion of “Reformed National Pricing”. Nine months later we are still waiting to find out what that means. The energy sector has become another victim of what Neil Kinnock, in an interview in Prospect, called the government’s “audacity deficit”.
The Iran war is a devastating event, but it could have one silver lining. The desperation to keep bills down in the face of yet another gas crisis, might—just might—open a brief Overton window for audacity. If so, Miliband has only a few months in which to seize the opportunity, and enact reforms which could yet mean that Clean Power 2030, or something close to it, is indeed the route to Cheaper Power 2030, and not its nemesis.
