UK Energy Markets Monthly - A review of energy markets, plus a Summer 2026 outlook

Rising Costs in Transition

UK energy markets have stabilised since the acute volatility of 2021-2023, with wholesale gas and electricity prices trending downward into 2026 thanks to abundant LNG supply and milder weather forecasts. Summer 2026 contracts trade below current levels, suggesting further easing in commodity costs.

However, the real pressure point lies in non-commodity costs—network charges, policy levies, and infrastructure funding—that form an increasing share of final bills. From April 2026, these charges begin hitting invoices hard, with TNUoS charges potentially doubling in the first year of the RIIO-3 price control period, as the National Energy System Operator finalised rates in early 2026 to fund grid reinforcements for renewables integration.

Businesses, especially energy-intensive industries, stand to absorb much of this increase, with estimates of £25/MWh added to electricity costs. This comes as non-commodity elements could approach 60% of typical business bills, driven by transmission upgrades, nuclear regulated asset base contributions, and other system costs. Meanwhile, recent policy moves in the 2025 Budget redirect some renewables obligation costs to general taxation, easing household bills by around £150 annually from April, but offering limited direct relief to commercial users.

The stakes are high for industrial competitiveness: prolonged high energy costs have already led to reduced investment, plant closures like those in chemicals, and warnings from groups such as the CBI of deindustrialisation risks. Geopolitical uncertainties and weather-driven demand spikes remain wildcards, but the structural shift—abundant supply clashing with expensive delivery infrastructure—creates a bifurcated market where wholesale relief does not fully offset regulated cost inflation.

Non-obvious tensions include the uneven burden across sectors and regions, with Scotland facing distinct grid charge differences, and the broader challenge of balancing net-zero ambitions against short-term affordability. While renewables growth continues, grid constraints and connection delays hinder faster cost reductions, leaving businesses to navigate hedging strategies carefully ahead of the April changes.