Why are Britain’s energy bills so high? The simple story, and the one accepted by most of the public, is that gas is the problem. Britain needs gas to keep the lights on, gas has got very expensive, and wholesale power prices are set by the most expensive source required to meet demand. There’s some truth to this. The spike in gas prices caused by Russia’s invasion of Ukraine was the main reason prices got so high recently. If gas prices fell a lot or Britain added cheaper alternative sources of power to the grid then wholesale costs should come down.

But that’s not the full story. At a recent Energy Security and Net Zero Select Committee hearing Octopus Energy’s regulatory head Rachel Fletcher pointed out that even if wholesale costs were to fall to zero, Britain’s energy bills will still probably rise by about £200 per year by 2030. Her comments surprised the MPs on the committee, though she was backed up by the other energy execs at the hearing.

Bad forecasts are such a problem because if we act on them we are likely to make our expensive electricity problem much worse.

Wholesale costs are just one part of our bills. There’s the cost of generating power, but there’s also the cost of running and upgrading the grid, running billing systems, dealing with unpaid customer debt, subsidies for poorer households, subsidies for cleaner forms of power, and subsidies to pay for backup capacity. On top of all of that, there’s the cost of dealing with the fact that electricity grids need to near-perfectly balance supply and demand. Wind farms and factories can both be paid to switch off at short notice.

If we build in anticipation of electricity demand surging (and it doesn’t) then all of these fixed costs become concentrated on a small slice of demand.