The UK government has unveiled plans to fundamentally restructure electricity pricing to protect households from sudden spikes in energy bills driven by international gas market volatility. The proposed changes aim to weaken the link between electricity and gas prices within the next year.
Currently, Britain's electricity wholesale price is determined by the last unit needed to meet demand—often gas-generated electricity. This means when gas prices surge due to geopolitical tensions or market fluctuations, electricity bills follow suit, even as renewable sources like wind and solar generate more affordable power.
Energy Secretary Ed Miliband announced the initiative, stating: "We need to get off the fossil fuel rollercoaster—this will make energy bills more stable and take the pressure off family budgets." He emphasized that transitioning to clean energy addresses both climate change and high energy costs.
The core proposal involves shifting older renewable energy projects—accounting for approximately one-third of Britain's electricity generation—onto fixed-price contracts. These projects would receive payments based on renewable energy costs rather than market prices tied to gas. This approach aligns them with newer renewable developments already on fixed contracts and is expected to buffer consumers against fossil fuel price shocks.
"You can't solve a fossil fuels crisis by doubling down on fossil fuels," Miliband argued, highlighting clean energy as the solution.
While the government hasn't specified exact savings, officials believe they could be "significant." Analysts suggest any reduction might be modest but would enhance price stability.
Concurrently, the government announced an increase in the windfall tax on certain electricity generators from 45% to 55%, effective July 1, with an extension beyond its 2028 expiration. This tax targets generators with older renewable contracts who profit from gas price spikes. The government hopes the tax hike will incentivize voluntary adoption of fixed-price contracts, which would be exempt.
Additional measures include amendments to planning laws to facilitate electric vehicle charging for homes without driveways and streamline solar panel installations for businesses, supporting a broader shift toward clean electric technologies.
Political reactions were mixed. Shadow Energy Secretary Claire Coutinho criticized the plan, accusing Miliband of "piling on cost after cost onto people's electricity bills" through taxes and levies. Reform UK's Richard Tice called it a "cynical move" to lock future governments into expensive contracts, while Liberal Democrat Pippa Heylings urged faster action to break the gas-electricity link so households benefit from cheap renewable power.
The Green Party's Carla Denyer expressed relief but criticized the government's slow response, noting: "It is nearly two years since the election—two years in which they could have prevented a crisis like this rather than just respond to it." Plaid Cymru welcomed the changes but urged further steps, warning that as long as electricity prices remain tied to gas markets, consumers will bear the brunt.
The plans will undergo public consultation, with the government aiming for implementation within about a year. Northern Ireland, part of a separate energy market, is not directly affected by these proposals.