The UK’s Clean Energy Market Is a Mess. The government isn't fixing it.

Imagine if, in any given half hour, every train ticket in Britain cost the same—whether you’re going one stop or the length of the country. Now picture railway builders getting paid the same rate per mile, whether they’re laying track through a packed commuter corridor or an empty stretch of countryside—and also the government guaranteeing that their future ticket prices will never drop below a certain level.

You’d get a wildly dysfunctional network: passengers overwhelming a few lines until they need rationing, others rolling near-empty, 5 minute train hops priced at £100 to subsidise country-wide journeys; and railway developers plonking tracks where it’s easiest rather than where demand is real.

Sounds crazy, right? Yet this is the incentive structure used to build and run the UK’s renewable power network.

In this post, I’ll explain why the railway analogy holds, and why it’s all the more baffling that Ed Miliband, Secretary of State for Energy Security and Net Zero, is locking the UK into the current broken model for the foreseeable future. I’ll end by showing how this decision undermines efforts to build the skilled workforce needed for the energy transition (something we care about at Kablio).

Setting the Scene: How the UK Grid Works Today

Energy Grids: Past, Present, and Future

Electricity moves instantaneously through the grid and has to be used when it is produced, so supply and demand must be balanced in real time. That used to be relatively simple: our system relied on a few large fossil-fuel power plants (because of economies of scale) that could ramp production up or down throughout the day (because they could easily control how much they burned), and power mostly flowed one-way to nearby consumers (because every region had a stable power plant).

But now we’re switching to renewable sources—highly distributed (there are lots of them in different places), intermittent (power varies with sun and wind), and needing a grid that sends energy across regions (to balance regional demand and supply).

Our grid isn’t ready. It wasn’t designed to draw power from many different sources and it lacks both storage and the transport capacity.

The UK clean energy incentive structure

1. One Fixed Price

Every 30 minutes, Great Britain sets a single wholesale electricity price—based on the most expensive generator needed to meet demand in the day-ahead market. Cheap renewables and expensive gas all get paid the same price. That means a cheap supplier can earn a big profit because a costly gas plant on the other side of the country set the national price.

What’s more, every auction-wining generators is paid, regardless of whether their electricity reaches consumers.

2. Guaranteed payments irrespective of location and usage

Power is increasingly concentrated in some (windy) regions, while demand is concentrated elsewhere, and transmission capacity has not kept pace to deliver power to where it is needed.

Like railways, power lines have limited capacity. When the grid can’t handle the flow, the grid operator tells renewable generators to switch off. But since they lose out on government-guaranteed payments if they don’t generate, they demand compensation. So we have to pay them to stop producing.

And because power can’t reach areas of high demand, the grid operator turns to nearby gas plants—the ones previously rejected for being too pricey.

So we often pay three times:

1. To generate renewable power

2. To switch off renewable sources (balancing cost)

3. To burn gas closer to demand (balancing cost)

Britain is on track to spend £2-3B on balancing costs in 2025—a figure projected to rise to over £8B by 2030.

3. Subsidies

UK-government–backed CfDs (Contract for Differences) guarantee low-carbon energy developers a fixed “strike price.” Each half hour, the market price is compared to that strike price: if the market price is lower, we pay the difference to generators; if it’s higher, the generator pays the difference back, which reduces bills. While CfDs can technically reduce bills, they added £1.883 billion in net costs to the grid in 2023/24—and costs are expected to increase further.

The UK government also spends tens of billions on grants and subsidies to help households, businesses, and local councils install solar panels, batteries, and other clean energy systems.

Why the current system is broken

Ed Miliband chose to maintain a national electricity pricing system rather than adopt regional pricing, where rates would reflect local supply and demand. As a result, all energy producers are paid the national price set by the most expensive generator—regardless of local conditions. This leads not only to higher direct costs but also to distorted incentives, forcing greater reliance on subsidies, curtailment payments, and costly grid upgrades to build out clean energy infrastructure.

Distorted Demand Incentives

Without regional pricing that reflects local supply and demand, there’s little incentive to shift electricity use to the times and places where it’s most available.

Where: There’s no incentive to build housing and energy intensive businesses—such as factories and data centres—near abundant generation, for example in windy parts of Scotland.

When: In areas with choppy electricity supply, households and businesses face weaker incentives to invest in demand-side response—such as smart EV/battery charging and timed heating/cooling—which would otherwise help smooth out supply and demand.

This causes upward pressure on curtailment costs (payments to renewable generators to stop producing) and total wholesale costs for consumers.

Distorted Supply Incentives

There’s also less incentive to store and dispatch electricity when and where it’s needed.

Uniform national pricing pushes developers to prioritise sites that are easiest to permit and build, rather than those that add most value to the system.

It also weakens incentives for households and businesses to generate, store, and dispatch behind-the-meter power where and when it’s needed. For instance, households in regions with intermittent supply, are not incentivised to install home batteries that soak up electricity when it’s abundant and dispatch it when there’s a shortage.

In the absence of good market signals, policymakers fall back on blunt mandates. For example, the government is making solar panels mandatory on all new English homes by 2027—a blanket rule that may not suit a house in northern England, which gets little sun and which has access to abundant (and what should be cheap) Scottish wind power.

Because we’re not managing supply assets efficiently, we overbuild—adding more generation and storage than what should be needed. That means we need more subsidies, from CfD top-ups to consumer incentives for solar panels and batteries.

Increased Transmission Costs

Because the UK doesn’t balance demand and supply locally, we’re forced to overbuild the national transmission network to move electricity across the country. These projects are extraordinarily expensive and slow—burdened by capital intensity, complex route planning, environmental reviews, land acquisition, and frequent legal challenges. (National Grid’s “Pathway to 2030” plan calls for £54 billion in grid upgrades just to accommodate 50 GW of offshore wind).

Of course, some grid modernisation is essential to support the renewable transition regardless of the pricing model. But because we don’t manage supply and demand efficiently, we end up building far more infrastructure than should be necessary.

How current policy worsens the clean-energy labour shortage

• Explicit Opportunity Cost: Excess wholesale prices, balancing charges, CfD top-ups, and other subsidies represent funds that could instead be invested in training and workforce development.

• Muted Labour Demand Signals: Uniform national pricing suppresses local price signals, making it harder to attract and train workers in regions with unmet clean energy potential.

• Misdirected Investment: We build generation and storage in the wrong places—like rooftop solar on homes in cloudy northern England or wind farms that are frequently curtailed—and then overbuild the grid to shuttle that mismatched power across the country. This drives unnecessary labour demand and capital expenditure.

• Government-Led Inefficiency: While grid coordination and public oversight are essential, excessive reliance on government planning and subsidies—rather than market signals—slows progress. Bureaucratic approvals, top-down siting decisions, and overlapping mandates introduce costly delays.