Burnham's North Sea Reset: What It Means for Business Energy Bills.
The new Prime Minister is signalling a return to domestic drilling. For energy-buying businesses, the real question isn't politics:
Since taking office, Prime Minister Andy Burnham has been weighing a decision that would have been unthinkable from his predecessor: waving through new North Sea oil and gas drilling, including at the long-delayed Jackdaw gas field and the Rosebank oil field off Scotland. Reports suggest approval could land within days, alongside a wider push to expand “tie-back” drilling at existing platforms. For a government elected on a manifesto built around net zero, it is a striking shift, and it lands in the same month that Ofgem is due to confirm winter price cap levels and a steep new tax on renewable generators takes full effect. Put together, these three threads say something clearer about where UK energy costs are heading than any one of them does alone.
Why the North Sea is back on the table
The case being pushed by industry is straightforward. UK upstream oil and gas investment fell to roughly £4.4 billion in 2025 and was on track to fall further, to around £2.5 billion this year, as operators pulled back in the face of licensing uncertainty and the windfall tax regime introduced in 2022. Offshore Energies UK, the industry’s main trade body, has argued there is an “overwhelming” case for developing Jackdaw and Rosebank, framing continued domestic production as a matter of energy security and industrial jobs rather than a retreat from climate commitments. The Chemical Industries Association has made a similar argument, describing backing for North Sea projects as a way to protect manufacturing competitiveness and cut reliance on imported gas, rather than a move against renewables.
Burnham’s team appears to be trying to hold both positions at once: approve new domestic production while insisting the UK’s 2050 net zero target and broader clean power ambitions remain intact. Whether that balance holds under scrutiny from his own backbenches and from climate groups is an open question, but for businesses buying energy, the more immediate point is what new domestic supply could do to price volatility. Britain currently imports a significant share of its gas, which leaves wholesale prices exposed to global shocks. That was on full display in July, when Middle East tensions and low wind output pushed day-ahead power prices up by more than 140% in a matter of weeks. More domestic production would not insulate the UK from global gas pricing entirely, since North Sea gas is sold into the same wholesale market, but industry argues it would reduce the exposure to shipping, geopolitics and currency swings that comes with imported LNG.
The windfall tax complicates the investment picture
The North Sea reset is landing at an awkward moment for renewable generators. From 1 July, the Electricity Generator Levy (a windfall tax on low-carbon power generation introduced in 2023) rose from 45% to 55%, and the government has extended it beyond its original 2028 end date. RenewableUK’s chief executive has warned that the uncertainty around the change itself, not just the higher rate, is what unsettles investors, and that clarity is needed quickly to stop it pushing up the cost of financing new projects. Independent analyst Kathryn Porter has flagged a further wrinkle: the levy also applies to the UK’s ageing nuclear fleet, which could hasten retirements at exactly the point the grid needs firm, low-carbon capacity to back up intermittent wind and solar.
For businesses on flexible or renewables-linked contracts, this matters because generator economics feed through to long-term power purchase agreement pricing and, eventually, to what suppliers charge. A tax regime that discourages new renewable build even as electricity demand climbs (up 1.2% last year, with much sharper growth expected from electric heating, transport and data centres) tightens the supply-demand balance that keeps a lid on prices. New projects where the investment decision was taken before November 2023 are exempt from the levy, which protects some of the pipeline already underway, but it does little for the next wave of projects still being financed.
What this means for the rest of the year
None of this changes the numbers Ofgem is working through right now. The regulator must confirm the Q4 2026 price cap, covering October to December, by 26 August, with independent forecasters at Cornwall Insight currently pencilling in a level somewhat below the current quarter’s cap, assuming wholesale prices ease from July’s spike. Businesses on fixed contracts renewing this autumn should treat that forecast as a starting point rather than a guarantee, given how quickly wholesale prices have moved this year on weather and geopolitical news alone.
The broader signal from this month is that UK energy policy is trying to pull in two directions simultaneously: more domestic fossil fuel production to shore up supply security, and a tougher tax regime on renewables that industry says risks the opposite. Businesses that buy energy in volume have reasonable grounds to expect continued volatility through the rest of 2026, driven less by any single policy decision than by the tension between them. The practical takeaway is the same one that’s applied all year: build in a wider margin for price risk than usual when reviewing contracts, and don’t assume this summer’s calm in any one market signals a return to stable pricing for winter.