UK Overhauls Power Market, Cuts Gas Ties

The United Kingdom government set out plans on Tuesday to change how electricity is priced, with the stated goal of reducing the extent to which power bills move in line with volatile gas markets. Officials said the proposal is designed to limit households’ exposure to sudden energy price shocks, including those linked to international conflicts.

Under the current framework, wholesale electricity prices are set by the cost of the final unit needed to meet demand, which is often generated using gas. As a result, when gas prices rise sharply, electricity prices can increase even for consumers whose supply is largely backed by renewable generation. The government’s plan aims to weaken that link by shifting parts of the system away from gas-referenced pricing.

A central element is a push for older renewable energy generators to move from variable payments that track gas-linked market prices to fixed-price contracts. The government said these older renewable assets account for approximately one-third of Britain’s electricity generation. Officials want the transition to fixed-price arrangements to happen within the next year, arguing that this would make electricity bills less sensitive to swings in fossil fuel prices.

The government did not publish specific estimates for consumer savings. However, it said it expects a “significant” positive effect on costs for consumers if the reforms are adopted. The proposals are set to go through a consultation process, with implementation projected within approximately one year.

Chancellor Rachel Reeves and Energy Secretary Ed Miliband are expected to provide further detail on the package. Miliband is also expected to press for a faster clean power transition, pointing to the Middle East conflict and climate change as reasons for quicker and broader action.

Alongside the pricing reforms, the government is considering raising the windfall tax on electricity generators that was introduced in 2023. Officials said this could be used to encourage older renewable projects to adopt fixed-price contracts on a voluntary basis. The government also plans for Miliband to propose changes to planning laws intended to make it easier to install electric vehicle charging for homes without driveways and to support wider business uptake of solar panels.