In September, the Department for Energy Security and Net Zero published data compiled by the International Energy Agency revealing that Britain now has the most expensive industrial electricity prices in the developed world, despite paying close to average prices for wholesale gas.
A few weeks later, senior executives from Britain’s largest energy retailers told a Parliamentary inquiry into high energy prices that even if gas were given away for free in 2030, electricity bills would remain as high as they are today. Octopus Energy warned: “If we continue on the path we are on, in all likelihood electricity prices are going to be 20 per cent higher — even if wholesale prices halve.”
But why? To understand this, we must start from first principles. With energy, all sound policy must begin with thermodynamics — the foundation on which engineering, economics, and, ultimately, social and political outcomes rest.
There are four laws of thermodynamics. Rather confusingly, the first is called the “Zeroth Law”, which establishes the concept of temperature — the basis for measuring heat and thermal equilibrium. But for the purposes of energy policy, it is really the First and Second Laws that matter most. In his masterful 2017 book Energy and Civilisation: A History, Václav Smil — the world’s leading energy historian and realist — sets these principles out with unmatched clarity.
First, the Law of Conservation of Energy: energy can neither be created nor destroyed; it can only be transformed from one form to another. What matters is how efficiently those transformations occur.
Second, the Law of Entropy: every transformation leads to loss — useful energy degrades into heat and disorder. The potential for doing useful work steadily diminishes along every conversion chain.
Together, these laws tell us that the best energy systems are those that minimise conversion losses and maximise usable work. Start anywhere else, and failure is guaranteed.
In practical terms, that means prioritising density — more energy per unit of material, labour, and land — and reliability, meaning steady output that does not require constant backup or storage. Dense and reliable systems — nuclear, hydro, and all fossil fuels — sit closest to the thermodynamic ideal. Whereas diffuse and intermittent systems, including wind and solar, sit furthest away. This is because they require massive investments in land, capital, energy and materials, as well as transmission, storage, and balancing efforts to deliver less output. In short, the Energy Return On Investment (EROI) is lower than with thermal power systems such as nuclear and gas.
To illustrate the point, consider Hinkley Point C. When complete, it will occupy around 430 acres and generate up to 26 TWh of electricity each year — roughly 7 per cent of the UK’s total output, enough to power six million homes. By contrast, the campaign group Britain Remade estimates that producing the same amount of electricity would require around 130,000 acres of solar panels or 250,000 acres of onshore wind turbines.
As the home of the Industrial Revolution, we have known these physical truths since the nineteenth century, when the laws of thermodynamics were first formalised. But viewed through a wider lens, they explain the entire trajectory of human progress. From the beginning, as Smil argues, our story as a species has been one of mastering ever denser and more reliable sources of energy. Over thousands of years we moved from foraging to agriculture, from muscle power to mechanical power, from wood to coal, from coal to oil and natural gas, and from there to nuclear power and the electrification of modern life.
Each great advance — industrialisation, urbanisation, transportation, computing, and now even artificial intelligence — has been built on the same foundation: the ability to harness energy that is more concentrated, more controllable, and more abundant. Through a thermodynamic lens, civilisation itself has been a sustained effort to reduce entropy — namely to turn the chaos of nature into the order, productivity, and possibility that define the modern world.
We have made our electricity system less efficient in two fundamental ways
Once you understand this — both physically and historically — it becomes obvious why Britain now suffers from the highest electricity prices in the developed world. For more than two decades, our political class, through a mixture of indecision on nuclear, blind optimism on renewables and myopic attitudes towards hydrocarbons, has built an energy system that defies the very laws on which prosperity depends.
Broadly speaking, I believe we have made our electricity system less efficient in two fundamental ways.
First, we have reversed the historical trend towards density and reliability. Since the 1990s, Britain has subsidised diffuse and intermittent renewables to sit at the base of our generation mix — weakening the very foundations on which affordability and security depend.
Since 2005, when Britain’s electricity generation peaked, we have gone from a grid underpinned by 95 per cent firm power — coal, gas, oil, hydro and nuclear — to one where such sources now provide less than half of our electricity. In two decades, we have replaced stability with volatility.
And since 2008, this has all been done under the guise of climate change — but that has always been a bogus argument. There is nothing in climate science that demands the use of renewables. As the late Professor Sir David MacKay, the government’s former Chief Scientific Adviser and a proponent of nuclear power and carbon capture for gas, warned in 2016:
There is this appalling delusion that people have that we can take this thing that is currently producing 1% of our electricity and we can just scale it up … Humanity really does need to pay attention to arithmetic and the laws of physics — we need a plan that adds up.
MacKay’s message was simple: the constraint is physics pure and simple.
Second, through successive layers of legislation and regulation — not just the Climate Change Act — we have embedded a smorgasbord of well-meaning political ideals such as justice, equality, dignity, nature and localism that end up creating perverse incentives and warping priorities. These now make it almost impossible for the system to fulfil its primary purpose: supplying cheap, dependable power to households and industry.
The point could not be clearer than in this week’s revelations in The Times about the government’s competition to select a preferred bidder for small modular nuclear reactors. What was billed as “the fastest process of its kind in the world” became a two-year ordeal that cost taxpayers £22 million before construction has even begun. The root cause of this paralysis was the Public Services (Social Value) Act 2012 in conjunction with the Equality Act 2010.
As a result, firms were required to complete hundreds of pages of paperwork demonstrating their “social value”: how they would employ asylum seekers, ensure gender parity across their supply chains, and meet a raft of diversity and community metrics. Twelve per cent of the final score depended on these factors — none of which has anything to do with producing cheap, reliable power.
It is a perfect illustration of how political ideals — in this case equality of outcome — have displaced purpose and delivery.
Contrary to what Ed Miliband and the Labour Party argues, Britain’s energy crisis is not a failure of markets, technology or Vladimir Putin. It is a failure to confront reality and respect the laws of physics. Until Westminster rediscovers the simple truth about energy — that economics flows from an understanding of thermodynamics — we will remain trapped in a high-cost illusion of our own making for many decades to come.
