Why grid reform is good, but not
good enough... 

Nobody wants to pay more for their energy bills – we hear in the press all the time.
The Government is failing to make the case to the general public for extra investment, and ‘woke green policies’ are now part of the culture wars.

Steve Wardlaw, December 2025

The latest OFGEM bill increases for grid development are good, and they may bring prices down. But it’s not the whole picture – we need to be much more radical.

Part One – why grid investment is essential.

Nobody wants to pay more for their energy bills – we hear in the press all the time. The Government is failing to make the case to the general public for extra investment, and ‘woke green policies’ are now part of the culture wars. While Labour may be wobbling on climate, the two other contenders for government want to simply rip it all up.

But Labour has not got a convincing message, and may be seen to struggle with a lack of honesty. While the dash for net zero (as currently proposed) is not going to lower bills in the short term, there are some investments that make sense, the grid being one of them. Last week OFGEM released its decision on network price controls and capital investment from next year until 2031.[1]

But there is a way to link lower bills and the now-important energy security. It needs a new vision from the government and some difficult U turns.

The UK power and gas grid has been in need of major investment for some time. Don’t get me wrong – that investment should have been paid for by the power and gas retailers when they were making big profits. However, the regulatory structure did not allow for that. While this is the perfect example of ‘Well, I wouldn’t have started from here.”, we are where we are.

So what are the problems with the power grid, as an example, currently? (I will deal with gas grid issues in a later piece)

Firstly, it is quite old and inefficient – this is the biggest investment in the power grid since the 1960s, and the grid itself was only created in 1926, to give you an idea of the scale of underinvestment. Current system loss (power lost in the operation of the transmission and distribution networks) is between 7-8%, meaning around 21.4 TWh lost. To give you an idea of that that means, an average sized gas fired power station would take 3.5 years to generate 21.4 TWh – one year’s system loss. Or in reverse, we run 3.5 average sized gas power stations to compensate for an old grid system.

With suitable investment this system loss could be reduced to around 3% and the OFGEM report aims to deal with some of this.

Secondly, the grid is facing the wrong way. At a high level the grid is designed to take power from big oil and gas generation (largely north to south) whereas with wind generation a lot of power is coming in from the east of the country and needs to move west.

This means that constraints (where a generator wants to connect to the grid but cannot because of a lack of grid capacity) are an increasing issue. In most cases of contstraint,  it is scheduled wind generation that cannot be connected to the grid. However, as that power has been bought, (usually) gas fired generation somewhere else has to be ‘constrained on’ ie the grid operator pays to have extra generation run at the last minute, which is expensive – and not green.

The issue is getting worse. In 2023, about 4.3TWh of generation was curtailed, costing the grid (and therefore consumers) £300m. In 2024 the cost was £393m, for about 8.3TWh, almost 10% of total wind generation. Estimates for 2025 could be as high as 13% of wind output, so around 11TWh at a cost of say £500m? Again, that would be another two gas fired power stations running full time. And some estimates suggest that constraint payments could be in the billions by 2030.

Whatever you think about net zero, we can’t get there by building more wind generation that is going to be constrained off. As OFGEM has rightly said, this needs to be tackled urgently in the next spending cycle. More so, the Government also needs a more sophisticated solution to energy transition in the current climate.

Part Two – how else to minimise sunk grid costs

The situation around green energy and net zero has changed in the last 10 years. We have seen, if not a collapse, a strong wobble in the millennial world order. While green issues are still important, they cannot come at the cost of energy security or economic security – ie they are tied into the cost of living. Several of our constraint issues come from the fact that the grid is aligned to gas powered generation – so we could also use that capacity by producing more gas.

While this may be an anathema to some, the new world situation cannot be ignored. We cannot rely on imported gas during a transition period where we have the creative tensions of (a) huge capital expenditure in our system and (b) keeping prices down.

The Government moved some of this way in November 2025. Although it confirmed a ban on new fields, it may allow some limited expansion on existing fields. Does that go far enough? In the current climate probably not. If Norway can do a new licensing round and maintain its green credentials, then the UK should be able to do so. Norway has justified this massive expansion on the grounds of - energy security, managing a just transition to green power, sustaining Norway’s industrial base and also making use of existing infrastructure before it is decommissioned. All of these points can apply to the UK, particularly the last one where we have a strong existing infrastructure that can be easily linked. As these are sunk economic costs, it makes green sense to use them as much as possible given a need to balance our transition, and the cost of living.

A very effective summary of the issues with our current structure comes from Dieter Helm in a recent paper[2]. The transition to renewable energy is baking in higher costs and so we need to look at ways to reduce that however we can. We are still relying on gas imports based on global energy prices and while these are (relatively) lower now they are still subject to geopolitical movements. Homegrown gas and oil would still reflect a global price but at least the government would have a tax take. Perhaps more radically what about allowing Norwegian degrees of new exploration, but guarantee that the Government’s stake (through tax and a golden share in each new exploration) must go into the National Wealth Fund or GB Energy to offset the hidden renewable infrastructure costs.

OFGEM has produced sensible costed proposals that reflect the need to upgrade the power grid while realigning it. The Government should match this with a new approach of using existing sunk capital infrastructure, building in energy security and explaining to voters that extending the use of gas is sensible, proportionate and cost-effective.

December 2025

[1] RIIO3 Final Determinations for the Electricity Transmission, Gas Distribution and Gas Transmission Sectors
[2] Dieter Helm British Energy Policy – not cheap, not home-grown and not secure 5 November 2025

Cover: stock