The UK government has announced decisive measures to weaken the long-standing link between volatile international gas prices and domestic electricity bills, aiming to shield households and businesses from future energy shocks.
The announcement comes amid ongoing global instability, including tensions in the Middle East that have driven up wholesale gas prices and threatened another spike in energy costs.
Despite renewables and nuclear now forming a large part of the electricity mix, the UK’s marginal pricing system has meant that gas-fired power stations often set the wholesale electricity price, exposing consumers even when cheaper low-carbon generation dominates supply.
Breaking the gas-electricity link
Under the current system, gas has historically set the electricity price around 90% of the time in the early 2020s – that figure has fallen to about 60% today. The government wants to reduce it further to around half by 2030 as part of its clean energy mission.
The centrepiece of the new package is the introduction of voluntary long-term fixed-price Wholesale Contracts for Difference (WCfD) for existing low-carbon generators.
These contracts would cover around a third of Britain’s power supply and allow eligible generators to exchange volatile wholesale revenues for a stable fixed price. This shields both generators and, ultimately, consumers from gas price spikes.
Details will be subject to consultation later this year, with the allocation process expected in 2027. Generators under the Renewables Obligation will retain existing support while gaining access to fixed wholesale pricing, provided the deal offers clear value for money to consumers.
Complementing this, the government is immediately increasing the Electricity Generator Levy from 45% to 55%.
The levy taxes excess profits made by electricity generators during periods of high gas prices, with the additional revenue directed toward support for households and businesses facing cost-of-living pressures.
The long-term vision
“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,” said Prime Minister Keir Starmer.
Energy Secretary Ed Miliband described the move as doubling down on clean power in response to the “second fossil fuel shock in less than five years,” declaring that “the era of fossil fuel security is over, and the era of clean energy security must come of age.”
The announcement includes a broader push to expand homegrown clean power and reduce reliance on imported fossil fuels:
- Increased grants under the Boiler Upgrade Scheme, rising to £9,000 for households switching from heating oil or LPG to low-carbon alternatives in England and Wales.
- An extra £100 million for solar installations on up to 57,000 social homes this financial year, alongside £1.2 billion already allocated for upgrades.
- Funding for solar on 100 additional schools and colleges, with up to £40 million from Great British Energy.
- Reforms to unlock public land for renewables (potentially delivering 10 GW, enough to power five million homes), faster planning processes, and easier installations of solar, heat pumps, and EV chargers – including for renters and flat-dwellers.
- A Reformed National Pricing Delivery Plan expected to deliver up to £20 billion in savings between 2030 and 2050 through a more efficient electricity system.
These steps build on recent reductions in the Ofgem energy price cap. From 1 April 2026, the typical dual-fuel household bill on direct debit fell by around 7% to £1,641 annually, partly due to government decisions to shift certain environmental scheme costs away from bills.
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