The UK’s policy of using massive subsidies to support politically-favored green technologies has resulted in some of the highest energy prices in the developed world, and the government should instead foster a competitive, technology-neutral market to drive down costs and encourage innovation, says Matthew Bowles
“We are in the absurd situation where our country is leaving vital resources untapped… We are going to get all our oil and gas out of the North Sea” declared Kemi Badenoch over the weekend. Her pledge was meant as a rallying cry, and indeed it is refreshing to hear, but it illustrates the deeper flaw in Britain’s energy strategy.
Our energy policy looks less like a free market and more like a fixed horse race in which ministers have already picked the winner and forced the taxpaying jockey to bring it across the finish line. Instead of letting competition drive down costs and spark breakthroughs, successive governments have locked the country into a narrow stable of favoured technologies, propped up with subsidies, tax breaks and privileges.
In some cases, state intervention in critical markets makes sense. The UK was right to bar Huawei from 5G networks on national security grounds. With concern over Chinese ownership of British energy infrastructure, one can also imagine when such interventions might be necessary in the energy market.
There are some other arguments too. Some technologies carry large upfront costs that private investors may hesitate to shoulder alone. Subsidies are sometimes justified to accelerate early-stage innovation, for example. But too often they persist long after technologies are mature or alternatives exist.
Picking winners
Whatever the merits, they are miles away from our current form of state interference in which politicians decide decades in advance what Britain will run on, hard-wiring today’s fashionable yet shaky assumptions about energy into tomorrow’s infrastructure.
Net Zero legislation has turbocharged the problem. Energy policy should be set by broad goals – that it be cheap, reliable and secure – then government should then take the back seat.
Instead, Britain’s approach has become a masterclass in fixing on winners which are expensive, unreliable and insecure, but which conform to Net Zero orthodoxy. Offshore wind receives billions from the government in Contracts for Difference guarantees. Biomass giants such as Drax enjoy vast subsidies despite growing doubts about their green credentials. Between 2002 and 2024, renewable electricity subsidy schemes cost a staggering £220bn (in 2024 prices), adding about £280 to household energy bills per year.
Elsewhere, heat pumps are championed as the only way to decarbonise home heating, while infrared and hybrid systems are ignored. Grant schemes like the Rapid Charging Fund and fast-tracks for EV charge points are supported, while synthetic fuel infrastructure gets far less. If these technologies truly work, they shouldn’t require constant political and financial life support. Competition is distorted, and innovators are discouraged.
The ultimate losers? Consumers and businesses. UK household electricity prices are among the highest in the developed world, at $0.40/kWh – more than a third higher than France ($0.28) and more than double the US ($0.18).
UK household electricity prices are among the highest in the developed world, at $0.40/kWh – more than a third higher than France ($0.28) and more than double the US ($0.18)
Businesses face the same problem. In 2023, the UK reported the highest electricity prices for industrial users out of 24 comparable countries. Prices were 50 per cent higher than in France and Germany, and four times higher than the US and Canada. Manufacturing has become far less competitive, pushing production abroad.
Other countries show what a more open model can deliver. In Sweden, district heating operators choose heat pumps, waste heat or geothermal according to what makes most economic sense locally. Spain rebooted its solar industry not with direct handouts but by scrapping fixed price subsidies and simplifying permitting, triggering a private investment boom.
Britain itself once proved the point. Liberalisation of the electricity market in the 1990s spurred private investment and drove down costs. For a time, households and businesses enjoyed some of the most competitive prices in Europe. Not because Whitehall picked favourites, but because it enabled open rivalry.
By contrast, Britain risks locking itself into an energy market shaped by politics rather than economics. This will almost certainly mean high bills, weaker supply resilience and even slower emissions cuts if superior technologies are blocked by subsidy-driven incumbents.
History shows how unpredictable the sector can be: few foresaw the collapse in solar costs 30 years ago, or shale gas 15 years ago. Future breakthroughs may not even exist yet, but government risks closing the door by betting on today’s favourites.
The answer is not rigid Net Zero targets propped up by subsidies. That locks the economy into costly policies and undermines competition. Ministers should phase out technology-specific handouts and set neutral conditions where solutions can compete on cost and reliability. If offshore wind, biomass or EVs are truly best, they’ll thrive on their own merits. If cheaper, more reliable alternatives emerge, they must not be strangled.
Britain’s prosperity has always rested on innovation. We will not get the best energy technologies by deciding in advance what they must look like or by insulating them from competition. Badenoch is right that leaving resources untapped is absurd, but simply unleashing oil and gas production will not solve all our problems alone. Government should stop fixing winners and create a genuinely open contest. Only then will we discover how much faster, cheaper and more resiliently we can power our country.
Matthew Bowles is senior policy researcher at the Prosperity Institute