Decisive action to break influence of gas on electricity prices

Plans to better protect families and businesses by ending the unfair way international gas prices push up electricity prices across Great Britain take a major step forward today.

Instability in the Middle East has shown that Britain’s reliance on international fossil fuel markets leaves families and businesses exposed to volatile gas prices, driving the cost-of-living crisis even though much of the country’s electricity comes from cheaper renewables and nuclear.?

When wars, geopolitical tensions or supply shocks abroad push up global gas prices, electricity bills rise with them, exposing families to crises they have no control over.?

Over time, this problem is easing as new clean energy projects are built on fixed price contracts that protect consumers from gas price volatility. But a significant share of renewable generation – about 30% of Britain’s power supply – is still exposed to wholesale prices set by gas, leaving families vulnerable when international prices rise.

Therefore, to shield families from future crises, today the government is setting out new measures to ‘break the link’, reducing the impact that volatile gas prices have on the price of electricity. This will be done by:

• Voluntary long term fixed contracts: offered to existing low-carbon generators not on?fixed?price?contracts – covering around a third of Britain’s power supply. This will help protect families and businesses from higher bills when gas prices spike, with contracts offered only where they deliver clear value for money for consumers
• An updated Electricity?Generators?Levy: immediate action to tax excess profits through the Electricity Generator Levy by raising the rate from 45% to 55%, ensuring an increased proportion of the extraordinary revenues generated when the gas price spikes is available to government to support businesses and households with the impacts of the conflict in the Middle East on the cost of living

Measures announced today will further reduce the share of electricity exposed to gas price shocks and provide generators the economic incentive to move on to fixed contracts not linked to volatile gas. The government is monitoring the impact of the current crisis on energy bills and will be ready to step in to provide targeted support where necessary.

Britain has already moved from gas setting the price of electricity around 90% of the time in the early 2020s, to around 60% today. Through the government’s clean energy mission, it is estimated gas will set the wholesale price around half of the time by 2030.

Prime Minister Keir Starmer said:

We need to get off the fossil fuel rollercoaster – this will make energy bills more stable and take the pressure off family budgets.

When global gas prices spike, people here shouldn’t be picking up the tab.

Our focus is simple: easing pressure on household budgets now, while building a homegrown energy system that protects families from global instability in the years ahead.

Energy Secretary Ed Miliband said:

As we face the second fossil fuel shock in less than 5 years, the lesson for our country is clear: The era of fossil fuel security is over, and the era of clean energy security must come of age. That’s why we’re doubling down on clean power, to give our country energy security and bring down bills for good.

Chancellor Rachel Reeves said:

Hardworking British families and businesses should not bear the brunt of global gas price shocks while electricity generators are making exceptional profits.

Alongside moving generators onto the competitive pricing assured through wholesale Contracts for Difference, increasing the EGL to 55% will help to break the link between high gas prices and high electricity prices - offering households and businesses stronger protection against future energy shocks.

Further measures

Speaking today at the Good Growth Foundation, the Energy Secretary set out further measures to help cut bills for families and deliver more clean, homegrown power:

Bigger grants for households on heating oil and LPG

The crisis in the Middle East has impacted those on heating oil and LPG the hardest. The government is today announcing an increase to the Boiler Upgrade Scheme (BUS) grant for properties heated by oil and LPG, taking the total grant to £9,000. This will help those households and small businesses in England and Wales most impacted by rising energy prices, particularly in rural areas, to electrify their heating and provide greater certainty over energy bills.

Further details on Transitional Energy Certificates 

Today in advance of legislation, we are publishing further details on Transitional Energy Certificates to provide greater certainty and clarity for industry looking to invest in already-explored areas near existing licensed fields, supporting a fair and managed transition.

Faster upgrades for social housing 

The government is already investing £1.2?billion to upgrade 100,000 social homes over the next 2 years. To accelerate further, the government is today providing an additional £100 million of funding for the Social Housing Fund, subject to final approvals, to support the delivery of up to a total of 57,000 solar installations for households this financial year. Through the Social Housing Fund and social housing?regulations in the ‘Warm Homes Plan’, this will help households cut bills by hundreds of pounds and support?up to a million homes reach EPC C.

Solar panels for schools and colleges 

Building on the success of Great British Energy’s solar scheme, the government is backing the company to extend support for more rooftop solar installations on a further 100 schools and colleges this year. Up to £40 million of government investment, subject to final approvals, Great British Energy will deliver new rooftop solar and renewable schemes - helping the public sector cut energy costs and reinvest savings.

Public land 

Driving forward plans to massively expand renewables across the Public Estate – including using brownfield land, industrial sites and railway sites to host solar panels and wind turbines. This could unlock up to 10 GW of capacity, even using only a fraction of government land, powering the equivalent of around 5 million homes.

Planning and land rules

Streamlining outdated rules to unblock the grid and speed up clean, homegrown power, through the biggest overhaul of planning, land access and grid connection processes since the start of the government’s clean energy mission — cutting delays for essential grid upgrades and renewables, and exploring new routes for developers to build and connect their projects faster. 

EVs, heat pumps and solar 

Plans to make it easier for people to switch to cheaper electric transport and heating, by making EV chargers, solar panels and heat pumps easier to install for renters, flat-dwellers and households without a driveway.  

This summer, the government will legislate to introduce permitted development rights to expand EV charging provision, allowing for cross-pavement charging solutions and associated charging points. We will also shortly launch a consultation on changes to building regulations and wider plans to improve the ability to charge. This will look to increase EV charging provision in new buildings and those undergoing major renovations, as well as give renters and leaseholders greater access to charging by making it easier to request and install charge points. 

Further, we will be consulting this summer on changes to permitted development rights with the aim of making it easier to install air source heat pumps. The consultation will explore expanding permitted development including extending to non-domestic buildings and amending some siting restrictions, and seek views on how to enable more installations in flats.

The government is exploring ways to ensure that low-income households can benefit from plug-in solar through our ‘Warm Homes Plan’ this year, and have earmarked up to £25 million with a view to piloting support for plug-in panels in partnership with local authorities and mayors: our vision is a street by street approach where tens of thousands of low-cost solar panels are delivered to those most in need.

Heat pump manufacturing

Plans to back British jobs and innovation. New funding – backed by £90 million – will help build and expand heat pump factories in the UK, creating around 2,000 British jobs. Alongside this, extra investment in the £30 million Heat Pump Ready scheme will help companies design and test new, market ready heat pumps that are cheaper, smaller and easier to fit.

Reformed National Pricing

Households and businesses will benefit from a cheaper, more efficient energy system through a new Reformed National Pricing Delivery Plan. The delivery plan shows how smarter planning and faster delivery of electricity infrastructure could unlock up to £20 billion in benefits between 2030 and 2050.

Stakeholder quotes

Chris Norbury, CEO of E.ON UK, said:  

We welcome the government’s decision to decouple gas from the price of electricity. For too long, the value in our energy system has flowed to those at the top of the chain. Today’s move starts to turn that around. 

We also welcome the planning reforms announced today. The real way to make sure communities benefit directly from clean power is solar on the roofs of our schools, hospitals and public buildings or extending access to innovative projects like our solar sharing communities. That’s clean power delivered where people live and work without unnecessary infrastructure costs, cutting bills for the services they rely on and a benefit communities can see and feel.

Simone Rossi, CEO of EDF Energy, said:  

Using electricity from wind, solar and nuclear to power our homes, transport and businesses is key to Britain’s energy security and household finances. But we can’t have a 2-tier system where only homeowners with a driveway and large roof can access the savings electricity can offer.  

There is a huge need to stimulate greater demand for electricity and ensure everyone in society can access its benefits, and we welcome government’s focus on this. In addition, we welcome streamlining of planning and connection processes to bring down the cost of building the infrastructure Britain needs.

Rain Newton-Smith, Chief Executive of the CBI, said: 

At a time of ongoing global energy instability, securing the UK’s energy supply and driving down costs for businesses and consumers must be critical national priorities.?The government is right to focus on energy security by pressing ahead with the expansion of renewable energy as a core part of the UK’s energy mix – alongside oil and gas.  

If implemented correctly, voluntary contracts for difference could reduce the impact of gas on retail electricity prices and ensure the benefits of clean power can be realised across the economy.

Tara Singh, CEO of RenewableUK, said: 

We agree with the Energy Secretary that the UK’s response to global gas price spikes should be to speed up the roll-out of homegrown renewables, coupled with rapid electrification, so that we can move faster towards energy independence. 

Reducing the link between volatile global gas prices and the cost of electricity will help to protect households, businesses and industries against the unpredictable costs of fossil fuels in the long term, strengthening the UK’s energy security.

Camilla Born, CEO of Electrify Britain, said: 

With the second energy crisis in four years, we need to create a system that does not expose people’s bills and businesses to sudden price spikes.?This announcement recognises that energy security and permanently low bills only come with electrification.?We look forward to working with government to make sure people right across the country can access the new electric tech that runs on clean, homegrown power.

Angela Francis, Director of Policy Solutions at WWF said:  

In an unstable world, we know that depending on fossil fuels means households and industries are stuck on an oil and gas price rollercoaster that is making us more vulnerable and destroying our environment. And that’s why today’s announcement matters so much.  

Accelerating the rollout of clean homegrown energy is the only solution that will futureproof the UK against shocks, protect bill payers, and help people switch to cheaper electric transport and heating, all while safeguarding our natural world and the species that depend on it, and protecting us from the worsening impacts of climate change.

James Alexander, CEO of UK Sustainable Investment and Finance Association, said: 

Secretary of State Ed Miliband is right that the lasting lesson of the recent energy crisis is the need to end the UK’s long-term reliance on oil and gas. This damaging new supply shock must be the turning point that puts the transition to a secure, clean economy well beyond doubt.  

We welcome fresh policy proposals tackling planning constraints and grid connectivity delays – issues that have undermined financing for critical renewable infrastructure projects over decades. Decoupling gas from the price of electricity is also vital for decarbonising the power system.

Madeleine Gabriel, Mission Director for Nesta’s Sustainable Future Mission, said:? 

Doubling down on clean heat and energy is the right move to protect the UK from further fossil fuel shocks. The only durable way to protect households and the public purse from energy crises is to reduce our structural dependence on gas and oil.  

The government’s commitment to accelerate electrification and unlock clean power are important steps towards building a more resilient and independent energy system. In particular, supporting homes to move away from fossil fuel heating and towards electric heat pumps is a critical step in reducing reliance on imported gas and oil.

Holly Brazier Tope, director of politics at Green Alliance, said: 

The government’s renewed focus on clean energy is a necessary and welcome response to the hard lessons of the latest fossil fuel crisis. The energy secretary is right to prioritise accelerating electrification and clean power as the surest path to security and long-term economic resilience.  

At a time when others are stepping back from climate commitments on the global stage, this is exactly the kind of leadership that delivers genuine independence and sets the standard for others to follow.

Notes to editors

Fixed contracts, known as ‘Wholesale Contracts for Difference’ will be introduced voluntary later this year, with an intention to run an allocation process in 2027. 

Explainer : Voluntary long-term fixed contracts   

A Contract for Difference (CfD) is a long?term contract between the government and an electricity generator that guarantees a stable, fixed price for the electricity they produce.  

A Wholesale Contract for Difference (WCfD) would offer existing eligible generators, who aren’t already contracted under a CfD, the option to accept a fixed price for the electricity they generate. This would mean that both they and consumers are no longer exposed to volatile gas-linked electricity prices.   

A WCfD would see eligible generators give up their current forward wholesale revenues in exchange for a fixed power price achieved via a CfD. Under this proposal it is envisaged that generators accredited under the Renewables Obligation (RO) would continue to receive support via the RO in the way they do currently – with only their wholesale revenues being exchanged for a fixed price CfD.  

The WCfD will be a voluntary offer to eligible electricity generators, and will be subject to consultation in due course. Government will only offer contracts to electricity generators where it represents clear value for money for consumers. Further details will be set out in due course, with plans to consult later this year.