Determining why electricity is more expensive than gas is vital for informed consumption and energy efficiency decisions.
As the UK reduces fossil fuel consumption, reliance on electricity increases. High electricity prices affect household budgets nationwide, leaving smaller portions of disposable income after fuel and housing costs.
Government estimates published in November 2024 show that record energy price rises may draw more families deeper into fuel poverty.
If you’ve not invested in solar panels, you likely noticed the spike in electricity prices in the past year. But what makes electricity more expensive than gas?
Quick Takeaways:
- The cost of electricity is nearly 4 times higher than that of gas.
- Factors influencing higher electricity prices include global gas shortages, electricity production and transmission issues, policies and taxes, market dynamics, and demand and usage patterns.
- Many countries worldwide show a similar trend to the UK, with electricity being more expensive than gas.
- Some strategies to help you adapt include energy efficiency measures, renewable energy adoption, and smart meter usage.
How Does the Cost of Electricity Compare to Gas in the UK?
The Energy Price Cap set by Ofgem controls what most households in the UK pay for gas and electricity.
It increased by 1.2% from 1 January 2025 to 31 March 2025 and is currently set at £1,738 per year for typical households using electricity and gas and paying by Direct Debit.
Figures from Ofgem show that the price of gas is nearly 4 times cheaper than electricity, as shown in the figure below:
| Fuel Type | Energy price cap per unit |
| Electricity | 24.86 pence per kWh (p/kWh) |
| Gas | 6.34 pence per kWh (p/kWh) |
The high price differences may reduce the economic attractiveness of electric-based clean technologies that help decarbonisation efforts, such as heat pumps and electric vehicles, and discourage their adoption.
What Factors Make Electricity More Expensive than Gas?
Global Gas Shortages
Natural gas is a cornerstone of the UK’s electricity generation infrastructure, accounting for a significant portion of the power produced.
Gas-fired power plants remain a critical backup during low output from renewables like wind and solar. Data from the National Energy System Operator (NESO) shows that gas generated 28.9% of Great Britain’s electricity generation in December 2024.
When global gas supplies are tight, wholesale gas prices rise sharply. This increase directly affects the cost of operating gas-fired power plants.
Electricity prices are determined by marginal pricing, meaning the most expensive energy source sets the market price. If gas-fired plants are required to meet demand, the elevated gas prices inflate electricity costs.
Global events like the war in Ukraine have disrupted gas supplies, leading to higher wholesale prices. These increases affect gas and electricity bills, given the role of gas-fired power plants in electricity generation.
Additionally, the UK imports some electricity through interconnections with Europe. Changes in European energy markets, such as price fluctuations or supply constraints, can directly impact UK electricity prices.
Electricity Production and Transmission
Electricity generation is a multi-step process that inherently adds layers of cost. Each energy source used in electricity production, whether fossil fuels, nuclear, or renewables, has unique expenses.
Generating electricity in gas-fired power plants and converting it into electrical energy involves efficiency losses and extra costs.
Electricity also suffers from transmission and distribution losses. Government data shows that around 1.7% of the electricity transferred over the transmission network and 5-8% of the electricity transferred over the various regional distribution networks is lost.
Such losses influence consumer costs. The greater the leakages, the more will have to be generated and consumed to compensate for the shortfall, leading to increased costs.
Environmental Policies and Taxes
- Carbon Taxes
The UK government imposes carbon taxes on electricity generation to discourage the use of fossil fuels. This tax applies to coal, gas, and oil used in power plants.
However, gas used directly in homes for heating or cooking is taxed much lower, making it comparatively cheaper.
For example, Carbon Price Support (CPS) introduced in 2013 aims to incentivize cleaner electricity generation. However, generators pass these costs to consumers through higher electricity bills.
- Subsidies for Renewables
To promote renewable energy adoption, the government provides subsidies to developers of wind, solar, and other low-carbon technologies.
Levies on electricity bills, such as the Contracts for Difference (CfD) mechanism, fund such subsidies and guarantee renewable energy producers a fixed price for their electricity.
- Green Levies
Electricity bills in the UK include charges for green initiatives, such as energy efficiency schemes and renewable energy subsidies.
These levies contribute to higher electricity costs but are absent from gas bills. Experts have recommended redistributing the levies, and the government has committed to reviewing them, but the timescales remain unclear.
- Decarbonization Goals
The UK’s commitment to achieving net-zero emissions by 2050 has led to policies prioritising electricity over gas. For example, electrification of heating and transport is encouraged, but this drives up electricity demand and prices.
Market Dynamics
- Wholesale Prices
Electricity wholesale prices are more volatile than gas prices. Factors like high demand peaks, where electricity demand spikes during heatwaves (for cooling) or cold snaps (for heating), influence this volatility and lead to price increases.
- Marginal Pricing
The most expensive energy source in the UK’s electricity market sets the wholesale price. When gas-fired power plants are required to meet demand, electricity prices rise, even if other sources like wind are cheaper.
- Retail Price Structures
Electricity bills include policies, levies, and grid maintenance costs, whereas gas bills focus primarily on wholesale and distribution costs. This difference in pricing structures contributes to the disparity.
Infrastructure and Maintenance
The national grid must handle the supply and demand of electricity in real-time, requiring constant upgrades and investments.
Adding renewable energy sources like offshore wind farms to the grid involves building new transmission lines and upgrading substations. For example, connecting offshore wind farms to the mainland grid can cost billions.
Additionally, transitioning to a smart grid to handle variable renewable energy and support electric vehicles (EVs) is an expensive but necessary investment. In contrast, the gas network is less complex and cheaper to maintain. Gas can also be stored in bulk during periods of low demand and transported efficiently through pipelines, making the system less expensive.
Demand and Usage Patterns
Gas demand is highly seasonal, and consumption usually peaks in winter as people need to heat their homes. Electricity usage is steadier throughout the year but has risen due to the adoption of heat pumps, EVs, and other electric technologies.
Gas boilers are also highly efficient at heating homes, providing more energy per unit than electric heating. As a result, households using gas for heating typically see lower bills than those relying on electricity.
People also use electricity to power various appliances, from lighting to entertainment devices, making it indispensable. This versatility and higher costs mean you’ll often feel the impact of rising electricity prices more acutely.
Is Electricity More Expensive than Gas in Other Countries?
Many countries worldwide show a similar trend to the UK, with electricity being more expensive than gas.
Germany
Germany has some of the highest electricity prices in Europe, driven by the Energiewende (energy transition) policy, which heavily invests in renewables.
Consumers bear the costs of subsidies for renewable energy projects, leading to elevated electricity prices. Gas prices in Germany have also risen due to reduced reliance on Russian imports, which previously met a significant portion of demand. The spike in gas prices during the winter of 2022 further widened the energy cost gap.
United States
Electricity prices in the U.S. remain relatively low due to abundant domestic resources like coal and natural gas. The gas market benefits from significant reserves and infrastructure, keeping costs low.
However, electricity costs more than gas due to additional expenses from generation, transmission, and distribution. Regional variations exist, with states like California experiencing much higher electricity costs due to renewable energy goals and grid modernization efforts.
Norway
Norway’s electricity prices are among the lowest in Europe, thanks to its extensive hydropower resources, which account for nearly all its electricity generation.
Hydropower has negligible fuel costs, making electricity affordable. However, gas prices are relatively high due to taxation policies discouraging fossil fuel use. Most households use electricity for heating, reducing reliance on gas.
Japan
Electricity prices in Japan are driven by dependence on imported fuels, particularly liquefied natural gas (LNG), following the Fukushima nuclear disaster, which led to the shutdown of most nuclear power plants.
Gas is also expensive due to Japan’s reliance on LNG imports. While electricity remains more costly than gas, both are high compared to global averages, reflecting Japan’s limited domestic energy resources.
Australia
Australia’s electricity prices are high due to ageing coal-fired power stations, the integration of renewables, and high network costs. Gas prices are relatively affordable, but exports to Asia often drive domestic prices upward. Despite its vast natural gas reserves, local consumers sometimes face higher gas costs due to export demand.
Netherlands
The Netherlands has seen a sharp increase in gas prices following the reduction of domestic gas production at the Groningen field, a key supply source.
Electricity prices are also high due to reliance on imported gas for power generation and renewable energy subsidies. The government’s push to phase out gas heating has led to additional levies, making gas more expensive relative to historical levels.
South Korea
In South Korea, gas prices exceed electricity due to the high costs of LNG imports. The government keeps electricity prices artificially low through subsidies since electricity is crucial for the industrial sector and economic growth. However, gas prices are subject to fluctuations in global LNG markets, making them more volatile.
What Are the Implications of Higher Electricity Prices?
Energy Inequity
The higher cost of electricity disproportionately affects low-income households, which spend a larger share of their income on energy. Targeted support, such as energy bill rebates, can help alleviate this burden.
Electrification Incentives
Higher electricity prices may discourage the adoption of electric heating and EVs. Policymakers must balance the need for decarbonization with the financial impact on consumers.
Future Tax Reforms
Some experts advocate rebalancing energy taxes to make electricity more competitive with gas. For instance, increasing carbon taxes on gas could encourage faster adoption of electric technologies.
What Can Help Electricity Prices Decrease?
Advances in Renewable Energy
As renewable technologies become more affordable and efficient, electricity prices could stabilize or decrease. For example:
- Offshore Wind: The UK aims to generate 50 GW of offshore wind power by 2030, with up to 5GW coming from floating offshore wind. This can help reduce dependence on gas-fired plants.
- Solar Energy: Increased solar adoption could lower daytime electricity prices.
Energy Storage Solutions
Improving battery storage technologies will allow excess renewable energy to be stored and used when needed, reducing reliance on gas-fired backup power.
Heating and Transport Electrification
The transition to electric heat pumps and EVs will increase electricity demand but could lead to economies of scale, eventually lowering prices.
How Can You Adapt?
Energy Efficiency Measures
Installing energy-efficient appliances and insulating your home can help reduce overall energy consumption and mitigate the impact of high electricity prices.
Renewable Energy Adoption
You can install solar panels in your home or business to generate free electricity and reduce reliance on the grid.
Smart Meter Usage
Smart meters provide real-time information about energy use and can help you shift consumption to off-peak hours when electricity is cheaper.
Consider Heat Pumps
Although expensive upfront, heat pumps are highly efficient and can reduce long-term heating costs as electricity prices stabilize.
Final Thoughts on Why Electricity is More Expensive Than Gas
The higher cost of electricity compared to gas in the UK results from complex and interwoven factors, including production methods, environmental policies, infrastructure needs, and market dynamics.
While this disparity poses challenges for households and businesses, it reflects the UK’s commitment to transitioning toward a low-carbon future.
Adopting energy-efficient practices and investing in renewable energy can reduce your reliance on fossil fuels and contribute to a more sustainable energy landscape.
Technological advancements and policy reforms can also help close the gap and make electricity a more accessible and affordable energy source for everyone.
Sources and References
- https://commonslibrary.parliament.uk/research-briefings/cbp-8730/#:~:text=Fuel%20poverty%20rates%20vary%20across,and%2024%25%20in%20Northern%20Ireland.
- https://www.ofgem.gov.uk/energy-price-cap
- https://www.neso.energy/energy-101/great-britains-monthly-energy-stats
- https://publications.parliament.uk/pa/cm201415/cmselect/cmenergy/386/38607.html
- https://assets.publishing.service.gov.uk/media/64a54c674dd8b3000f7fa4c9/offshore-wind-investment-roadmap.pdf