Grid Costs Set to Soar Even Higher

NESO calls for an extra £89bn of grid spending beyond 2030.

Introduction

Regular readers will remember out recent article documenting the forecast rise in subsidies and grid integration costs from £19.8bn in 2024/25 to over £40bn in 2030/31. Of this total, grid integration costs more than triple from £8bn in 2024/25 to £25bn in 2030/31. Grid integration costs consist of backup from the Capacity Market (CM), grid balancing costs plus the cost of running the high voltage transmission network.

The Low Carbon Contract Company (LCCC) has published its forecast showing CM costs are set to soar. NESO has recently published the costs of grid balancing for 2025/26 and has also recently made an announcement that indicates that transmission costs are set to rise further beyond 2030 as they called for a further £89bn of spending on the grid beyond 2030.

All this extra spending will increase the cost of running the grid, pushing electricity prices even higher, meaning higher bills for consumers and businesses, pushing up the cost of living and damaging industrial competitiveness. Time to dig into what is happening in more detail.

Capacity Market

As shown in Figure 1, the annual costs of the Capacity Market have been rising sharply in recent years.

Figure 1 - Capacity Market Backup Costs by Fiscal Year (£bn)

In fiscal year ended March 2017, the cost of the capacity market was less than £10m. Costs rose sharply to £1.1bn in 2021 before falling in 2022 and 2023. Since then costs have more than doubled from £0.69bn in 2023 to over £1.6bn in year ended March 2026.

Unfortunately, these costs are set to rise further as shown in Figure 2.

Figure 2 - Monthly Actual vs Forecast Capacity Market Cost (£m)

Actual monthly costs (orange line) were running at around £50m from October 2021 before rising to about £100m in October 2023 before jumping to around £150m per month in October 2025. The forecast (blue line) shows monthly costs are set to more than double to a £250-370m range from October 2026. Also note that for the periods where the actual and forecast overlap, the actuals tend to be higher than the prior forecast, so actual future costs may well be higher than forecast. Capacity Market costs are recovered through electricity bills, so we can expect this component of the price cap to rise sharply later this year.

Grid Balancing Costs

NESO is late producing its full annual balancing report for 2025/26. Nevertheless, they do publish monthly figures so it is possible to construct a dataset for that year. Figure 3 shows the trend of the last 12 months for each of the months on the x-axis.

Figure 3 - Last 12 Months Balancing Volume (MWh) and Value (£m)

For the year-ended March 2026, the total cost of running the balancing system was over £3.1bn, up from £2.7bn in the prior year. The trend is very clearly upwards since then end of 2024. The total balancing volume is also up, reaching over 46m MWh (46TWh) and volume has been rising sharply since October 2023. Unfortunately, NESO projects the cost of grid balancing is set to soar to £6.4-£8.3bn by 2030, before falling back in later years as shown in Figure 4.

Figure 4 - NESO Balancing Cost Projections

The one ray of hope is that balancing costs in 2025/26 were not as high as NESO’s projection, but nevertheless, they are still projecting costs to rise much higher in later years. Again, the costs of grid balancing are recovered through electricity bills, so we can expect this component of the price cap to continue to rise over the coming years.

Transmission Costs

NESO forecasts that transmission charges will more than triple from £4.2bn in 2024/25 to over £13.6bn in 2031. Their recent Electricity Transmission Update called for “a total of £89bn of network investment beyond 2030”. This means that the cost of the transmission network will continue to rise sharply beyond 2030. As shown in Figure 5, most of the extra grid lines are offshore links and a significant amount of the existing network is offshore links too.

Figure 5 - NESO Beyond 2030 Network Map

We can safely say the main driver of the increase in transmission costs is offshore wind. These costs should be borne by and attributed to the technologies driving the cost. Of course, transmission charges are recovered through electricity bills so we can expect prices to continue to rise beyond 2030.

Conclusions

We already have the most expensive industrial electricity prices in the developed world. With rising subsidies and grid integration costs out to 2030, electricity prices are set to rise even higher. Even then, there will be no respite because NESO is asking to spend an £89bn on the grid beyond 2030.

This is clearly unsustainable and must be stopped. In order to take 10p/kWh off electricity costs, a grid delivering 300TWh per year would need to cut costs by £30bn/yr. Taking this amount of cost out of subsidies and grid integration would take the total £40bn/yr forecast for 2030 down to £10bn/yr, roughly the total in 2017. This is the scale of cost-cutting that is required to make UK electricity costs more competitive. An incoming right-of centre government will need to take swift and brutal action to save what is left of British Industry. Emergency powers are going to be needed to return to a rational energy policy. Laws need to be repealed, subsidies removed, contracts broken and assets left stranded. Stay tuned to this Substack over the coming weeks for ideas on how this might be achieved.

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