The Cost of Electricity Generation Methods - Pager Power
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The Cost of Electricity Generation Methods

The Cost of Electricity Generation Methods
November 16, 2022 James Plumb

Over the past months, the UK and the world have seen the onset of a cost-of-living crisis. This has largely been caused by the rapid rise of energy bills, due to the worldwide increase in wholesale gas and oil prices. This has led to many people looking ever more closely at renewable energy, and how much cheaper these forms of electricity generation may be. 

Cost of electricity generation

Figure 1: Scout Moor Wind Farm at Sunset [1]

Cost Estimates for Electricity Generation Methods

In October 2022 the UK average price of electricity was £0.34/kWh [2], and the average UK electricity bill was £764 in 2021 [3], based on an annual consumption of 3,600 kWh/year. Adjusting for October 2022 prices, average UK electricity bills could now be £1,224 per year. Given the cost-of-living crisis, questions must be raised as to whether different forms of energy production could be cheaper and enable energy companies to lower these bills.

In 2020, the UK produced [4]: 

  • 45.4% of its electricity from fossil fuels, largely from natural gas (39.8%);
  • 39.6% of its electricity from renewables, such as wind and solar (24.9%);
  • 14.9% of its electricity from nuclear.

The following table shows levelised cost estimates for different forms of electricity generation provided by the UK Government Department for Business, Energy, and Industrial Strategy in August 2020 [5].

Figure 2: Cost per MWh of new UK electricity generation projects commissioned for 2025

As can be seen from the above table, the cost per MWh of electricity produced over the lifetime of a new solar or wind project is much less than the cost of new gas power stations, which could be a key factor in UK electricity generation moving towards a higher proportion of renewable energy over the next years.


As the UK moves to increase the proportion of renewable electricity production, this could lead to far lower bills for households in the longer term, however this will take time to feed through, given the delay between energy projects being proposed and beginning to produce electricity for the national grid. 

Assuming that reductions in the production costs of electricity were passed along to customers, and an average cost of £85/MWh for fossil fuel energy, if this were to be replaced by wind and solar at a cost of £44 to £57/MWh, this could lead to a saving of between £183 and £268 per year, depending on the proportion of wind and solar electricity production used [6].

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[1] Paul Anderson (December, 2008) from WikiCommons. Accessed on: 14th Nov 2022. Available at:



[4] 0/UK_Energy_in_Brief_2021.pdf

[5] /electricity-generation-cost-report-2020.pdf

[6] With fossil fuels accounting for 45.4% of 2020 UK electricity production, the average household would spend £556 on fossil fuel electricity in 2022, with an assumed average production cost of £85/MWh. If replaced with renewable electricity at an assumed average production cost of £44-57/MWh, this would cost the average household £288 to £373, resulting in savings of between £183 and £268.


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