Electricity needs to be cheap, clean, abundant and resilient. Here's my 8-point plan to turn the current Power Price Doom Loop into an Electrification Virtuous Circle.
Make Electricity Cheap Again! Without cheap electricity, there will be no electrification - and without electrification there will be no transition. Here’s how to get cheap, clean, abundant, resilient electricity. Source: Liebreich Associates
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The biggest barrier to electrification today is high power prices. As I have said before, we face a veritable smorgasbord of electrification options, and once electricity is “clean enough”, it makes far more sense to gorge on the smorgasbord than to pick away at the carcass of perfectly clean power at any cost. However, that only works if those tucking in to the smorgasbord see their utility bills falling rather than rising.
The reality is that consumers in many of the countries and states that have moved fastest towards clean power are seeing very high electricity bills. Telling people that renewable energy is cheap when they are having trouble making ends meet is not a good look. It matters little if the underlying driver of the economic stress is surging fossil fuel prices: if governments have spent a decade prioritising clean power over all other priorities but have failed to protect people from price shocks, they will draw their own conclusions.
There is nothing inherent to clean energy that says it has to drive up bills. Texas, South Dakota, Montana, Iowa, Kansas, Oklahoma, Wyoming, North Dakota, Scandinavia and Iberia have not seen surging power prices, despite building vast amounts of renewables. China has reduced its reliance on coal from 80% of power generation 20 years ago, to 50% now. It may gave built 78GW of coal-fired power stations last year, but it burnt less coal. And it did it without pushing up power prices.
However, a lot of European countries - along with places like California, Maine and a bunch of Australian states look like they are stuck in a Power Price Doom Loop: volume expectations drive up investment, which in turn causes costs to increase, which destroys the volume growth on which the investment was predicted. Add to that the failure to deliver meaningful electrification, mistakes in tariff and power market design, a dash to attract data centres, and mistaken hopes for the speed of grid build, and it’s an ugly picture that needs to change fast.
The good thing about doom loops is that they can work in reverse too. If power prices start to come down, demand will grow; additional flexibility and provide price signals will limit grid investment; scrape off some additional barnacles - and we could end up with an Electrification Virtuous Circle instead of the Power Price Doom Loop.
Here, then, to spark discussion, is my eight-point plan:
Remove taxes and charges
Smart grid build-out
Locational pricing
Accelerate electrification
New flexible demand
Delay investment recovery
Policy certainty
Clean-ish power
1. Remove taxes and charges
In market after market we see taxes and charges on power bills that have no business being there - historic green electricity subsidies, VAT, costs of energy efficiency programmes, social programmes, etc - all of which serve to distort consumer decisions in favour of gas and away from electricity that is increasingly clean.
Some are simply historic artefacts that should be eliminated. Others should be shifted over to gas and coal - after all, the cost of greening the system should be borne by the polluting resources, not the clean ones. When electricity was coal-fired, it might not have been obvious that it should be exempt from these costs, but it surely is now.
If rebalancing is not possible, simply move the costs to taxation or borrowing. Anywhere, in fact, where they stop driving up the cost of power and standing in the way of electrification.
This is starting to be understood, and I’ve seen initiatives in this direction in a lot of markets. Speed up.
2. Smart grid build-out
Every pathway to a lower carbon future ever modelled has shown a doubling or tripling of the use of electricity. And yet, between 2005 and 2020, investment in the grid barely increased. It was a monumental failure of leadership among our political elites and in the energy sector.
That has changed over the last five years, with planned investment ballooning massively and money starting to flow. The EU grids package unveiled at the end of last year included €1.2 trillion for grids by 2040, of which €720 billion is for distribution grids alone. A few points:
Plans are not investments. Money needs to flow. And projects need to be delivered on time. The accompanying enormous investments in generation capacity and electrification will be an own goal if the delivery of grid capacity lags.
There are lots of emerging technologies that could limit the need for new transmission and distribution assets - dynamic line ratings, digital twins, advanced re-powering, smarter switching and grid architectures, longer-duration storage, large amounts of distributed generation. If we ignore them, we run the risk of over-investing.
We also run a risk of over-investment, particularly because of the information asymmetry between an industry that earns its returns by putting more money to work in its asset base, and is able to act as a gatekeeper.
There is also a risk of overpayment for what we do build, given that in most countries and distribution regions, the incumbents have a monopoly over construction. We should be moving where possible to contestable contracts for grid build-out.
The same grids package contains €240 billion for hydrogen pipelines. I’ve shown elsewhere that the EU’s 20 MT hydrogen target (originally set for 2030) would require €1.2 trillion in production subsidies, on top of the €240 billion needed for pipelines, and still more for storage, distribution and use. Yet, there are still whole departments full of civil servants working on this nonsense, and there are millions and billions of £/$/€ still being spent - some of it to make our power system “hydrogen-ready”, in the same way as my 94-year-old mum could spend money making her driveway “Ferrari-ready”. It’s driving up power prices today and it needs to be killed off.
3. Locational pricing
For the first decade after I founded New Energy Finance, I was asked almost on a daily basis when renewable power would be “grid competitive”. The day came in 2015.
Renewable power costs plumeted at that point partly because of the learning curves that my team and I had been tracking, but also because the world abandoned the Feed-in-Tariffs Germany had been promoting around the world, in favour of mechanisms that built in price discovery: green certificates, renewable portfolio standards, public sector procurement and, most significantly, contracts for difference.
The march of the price signal. As soon as countries introduced some form of reverse auction for clean energy projects, costs dropped 30%. Within three years, it was 50-60% Source: Bloomberg New Energy Finance 2016.
On average, the moment countries introduced some form of reverse auction for clean energy projects, renewable power costs dropped 30%. Within three years, they had dropped by a further 30%. Price signals matter.
In the UK, the previous Conservative government ruled out moving to nodal pricing, but considered moving to around 10 or 12 zones. The current Labour administration gave gave in on zonal pricing, under the threat of an investment strike by the generators. It was a colossal error. All the analysis showed that locational pricing would deliver savings in every region of the UK.
Let me be as clear as I can be. You cannot keep average power bills down through the course of the transition unless you deliver time-of-use and locational price signals to consumers. This should be blindingly obvious: there are times when the sun doesn’t shine and the wind doesn’t blow, so the cost of electricity in any deeply renewable grid is bound to soar. You simply have to balance this out by dumping cheap power on consumers at the times when there is surplus.
It’s not just a question of keeping average costs down, locational pricing is also the key to managing NIMBYism. Who is going to complain about a wind farm, some pylons or an EV if they get a few hours of free power every day?
Nodal pricing may not be the only way to achieve these locational price signals. The UK is now engaged in a desperate search for a way of doing so that is consistent with a single national wholesale price zone. I am watching with sceptical curiosity. Centrally planning market outcomes is very hard.
On my recent trip to New Zealand people were astonished at Europe’s nodal price allergy. New Zealand has had nodal pricing for 30 years. Texas for 15 years. The big US markets (PJM, CAISO, NYISO, ISO-New England, MISO) for around 25 years. I suggest we stop telling ourselves that nodal pricing is too unfair or too complicated and get on with the serious business of introducing it.
The alternative - living with high electricity prices forever - is no long acceptable.
4. Accelerate electrification
I’ve written and talked so much about electrification, I don’t want to repeat myself here. For those new to the topic the best starting point would be the Electrification Staircase:
What I would like to do is to explain why electrification is the single most important tool in reducing electricity costs and turning around the Power Price Doom Loop.
The conventional wisdom today is that adding power demand will drive up prices. And certainly if all you do is add demand, without investment, then the lack of short-term elasticity would indeed be expected drive up prices.
Over time, however, and with a bit of forethought, the opposite is true. That is because more and more of the cost of power being driven by fixed costs - transmission and distribution grids, storage costs, integration costs, system stability assets and so on - so the key to controlling cost is volume.
It’s about increasing the size of the denominator. When we made more phone calls, we got cheaper phone calls. That’s how network economics work.
Of course there is also a supply cost curve for clean electricity. Like for like, costs rise as you use up the best locations. Again, however, the simple answer is not the right one. We are miles from running out of land area for renewables (most countries still devote more space to golf courses than to large-scale solar power) and we have hardly scratched the surface of our built or marine environments. For the foreseeable future, therefore, the costs of clean energy, storage and integration technologies will continue to fall faster than we run out of land area. And then there is re-powering. When projects reach end-of-life they are not shut down, they given another 25 or more years lease of life with new, cheaper, higher-output equipment.
That is why electrification will drive power prices down, not up.
5. New flexible demand
Then there is the question of what type of demand is going to be added to the grid.
Over the coming two decades, most of the additional demand will come from five sources: land transportation, cooling, space heating, low/mid-temperature industrial heat, and data centres. All of them can be made responsive to supply availability to some extent - minutes, hours or a few days.
What this means is that as we add demand to the grid, we can do it in such a way that peak demand is driven up by less than total demand. In other words, as we add new sources of demand, we can at the same time drive up the utilisation of all the fixed assets in our power system. And that will lower prices.
It is peak demand, not average demand that drives how much grid investment is needed. Take an example where half of an average power bill is driven by fixed costs (not the same as the fixed charge, which usually cover only a fraction of fixed costs). If you double power demand while only allowing peak demand to increase by 50%, you reduce the average electricity bill by 25%.
So the policy imperative is to ensure that, as we electrify, the additional power demand can be shifted even a small amount away from peak times.
My thanks to Jarrod Leak, CEO of the Australian Alliance for Energy Productivity (A2EP) for pushing my thinking here. He wrote a brilliant piece on LinkedIn highlighting how grid charges in Victoria were increasing because of expected demand that might not show up, despite low capacity utilisation.
Australian distribution grids - peak and non-peak network utilisation. We are investing trillions of £/$/€ in a system that is operating at low capacity factor because of lack of flexibility. Let’s fix that. Source: AER via Jarrod Leak
6. Delay investment recovery
Large parts of our energy systems are natural monopolies. There are some - like Yanis Varoufakis, when he came on Cleaning Up - who think that means the whole energy system should be nationalised, even the bits where robust competition has been shown time and again to drive down prices. Most people are more sensible.
Around the world, companies delivering the natural monopoly parts of the system - mainly transmission and distribution grid operators - are allowed to make a regulated return on capital invested. They submit plans for how to meet expected levels of demand and reliability, which the regulator, after a bit of analysis and negotiation, accepts. The operator is then allowed to set prices at whatever level is required to earn the regulated return on this Regulated Asset Base.
To increase their returns, companies borrow as much as they are allowed at a lower cost of capital, innovate to reduce costs (but only if the rules remunerate that behaviour), and enter adjacent, unregulated businesses.
Here’s the problem. As we have seen, in order to handle an expected increase in electricity demand, we are looking at a tsunami of grid investment in coming years. Grid companies are delighted - the regulator is letting them run up their Regulated Asset Base and increase their charges to customers, which enables them to borrow more and make more money. Their share prices and dividends have been soaring: the S&P 500 Utilities Total Return index shows an annualised 5‑year return of 13.85% as of late February 2026 - not too shabby for a sector that carries essentially no risk.
But what happens if the expected additional demand does not materialise? What should we do if those increased fixed costs themselves deter electrification and prevent the additional demand from materialising?
The solution is to delay the imposition of increased grid costs until such time as the expected demand actually materialises.
If grid investment could be timed to coincide perfectly with the increase in power demand, grid charges could easily be kept flat over time or even, as we have seen above, to reduce them. Today’s reality, however, is that we are having to fund a big jump in grid capacity after two decades of almost no growth, and the investment has to be anticipatory oryou get huge amounts of curtailment. So using the usual formulae leads to a bulge in grid charges that in many markets is expected to subside after a few decades.
To eliminate this bulge, the regulator could just tell the grid operators they can invest, but must not charge users until demand materialises. But that would cause their balance sheets to explode, and they would bear the risk of delays in volume growth. Their investors would require a very substantial risk premium, which would have to be passed on to consumers - a recipe for disaster.
What you would do is allow the grid operators to invest massively and run up their Regulated Asset Bases. But instead of passing the costs of this investment immediately on to consumers’ bills, the regulator would require them to keep grid charges flat, but make up the shortfall with payouts from a newly-created Great Electrification Amortisation Account (GEAA).
GEAM would be allowed to grow over time but the shortfall would reduce over time as additional electricity demand materialises, and eventually disappear. At that point, grid fees flip to being in excess of the running and capital costs of the grid operators, so operators start to pay back into the amortisation account, until eventually it is fully reimbursed.
It’s an extremely clever design, which those who worked on the German Hydrogen Core Network should be very proud of. Sadly, in the case of hydrogen pipelines, there will never be enough demand to begin paying back into the amortisation account; as a result, it will inevitably have to be written off before its end date of 2050.
In the case of the Great Electrification Amortisation Account, by contrast, the ultimate increase in power demand is not in question. And given that grid assets will (with appropriate maintenance and upgrading) have very long lifetimes, you could stretch out the repayment period to 50, 75 or even 100 years (100-year bonds have been used to fund railways and other infrastructure in the past).
It is important to note that delaying investment recovery is not the same as simply sending the bill for climate action to our children and grand-children. It is an elegant way of ensuring that the costs of a super-sized grid fall on those who use it, not just on those who happen to be around today.
And the assets that could be funded by GEAA could go far beyond just transmission and distribution grids, to include EV charging infrastructure and any other class of electrification asset with a very long expected life.
Canada’s transition faces a particular challenge: the country doesn’t have a single national high-voltage grid, it has a bunch of them, running North-South, linking different provinces to their newly-unreliable southern neighbour.
Canada doesn’t have a single national high-voltage transmission grid, it has many transmission grids that run North South, making it co-dependent with its newly unreliable southern neighbour. Image: OpenStreetMap 2025
Creating an East-West transmission system would bring enormous benefits to its power system in terms of cost, reduced emissions and, most critically resilience. It could turn out to be the type of nation-building project that brings Albertans back from their flirtation with independence. And it’s no fantasy: in March this year, 10 provinces signed an “interprovincial-territorial partnership to build transmission infrastructure needed to power the country’s next generation of growth”.
There’s not much to say about this one. One of the core challenges in energy and infrastructure right now is how to build assets with multi-decadal lifetimes in a world with a ten-minute attention span. One thing is clear - policy uncertainty translates directly into a higher cost of capital and higher power prices.
I recently spoke at the National Press Club of Australia (a scary experience, TBH), and the title of my speech was “Whatever the Question, Clean Energy is the Answer”. This was my attempt to inject into Australia’s polarised public discourse the idea that, for all the legitimate disagreement on motivations, there should be a high degree of agreement on the need to switch to clean energy.
8. Clean-ish power
The final part of my 8-point plan is to target what I call clean-ish power, rather than 100% clean power. As I have written about this here and in my Pragmatic Climate Reset (Part II), so I won’t recap my arguments here.
Marginal abatement cost in 2022 $/TCO2 for the US grid. Clean-ish power is a lot cheaper than absolutely clean power - and if you drive up the cost of electricity, you’ll never electrify and decarbonise the economy. Source: Mai et al 2022, “Getting to 100%: Six strategies for the challenging last 10%”, NREL; Liebreich Associates
Suffice it to say that the fastest pathway to reduced emissions is also the one that keeps power prices to a minimum. Seen in this light, the UK Government’s insistance on Clean Power 2030 as the over-riding policy goal is a huge blunder.
Summary
So, there you have it. My 8-point plan to Make Electricity Cheap Again - as well as clean abundant and resilient.
As is always the case, I am sure there is much I have missed, or got wrong, but this will do as a discussion starter. Don’t be shy!
Andy listened to Michael and got rid of VAT on electricity bills! Bravo Michael!
Excellent thoughts and analysis. An interesting addition about storage in the comment by Jim Lazar. I hope we can take this road ahead.