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UK government attempts to weaken dependence of electricity price on gas
27/4/2026
News
The UK government has announced plans to offer voluntary long-term contracts for low-carbon generators not currently on fixed-price contracts (about a third of low-carbon electricity generation). It has also raised the rate of the Electricity Generators Levy from 45% to 55% on profits of gas operators during price spikes. Both actions, it says, will help reduce the dependence of UK electricity prices on the price of gas which is set by international markets.
Speaking at the Good Growth Foundation’s National Growth Debate, Energy Secretary Ed Miliband said: ‘The structure of our energy system means that today, volatile gas usually sets the wholesale price of electricity, meaning that at those times, many renewables and nuclear generators get paid the gas price. At times of crisis, like now, this compounds the impact of fossil fuel shocks on families and businesses. And, indeed, drives large windfall profits for some electricity generators.’
‘Now it’s important to say this, we have already moved from gas setting the price of electricity around 90% of the time in the early 2020s, to around 60% today. And thanks to our clean power mission, we estimate gas will set the wholesale price around half of the time by 2030.’
‘But in addition to that, by building clean power we are expanding the proportion of generation on long-term fixed-price contracts, that’s CfDs [contracts for difference, in which the government contributes to guarantee underperforming assets], from around 20% today to over 60% by 2030, which is crucial because it helps break the link with volatile gas even further.’
The UK Energy Research Centre praised the plan. It said that it first proposed a ‘pot-zero’ CfD in 2022, which would place the older renewable energy schemes that receive Renewables Obligation payments (RO) on the fixed price CfD that has been used for new renewables schemes since 2017. It went on to say: ‘The “wholesale price CfD” announced by the government today stops short of the full pot-zero proposal, since it will leave the RO subsidy in place. This makes the potential savings smaller, but it will break the link with gas prices. The devil will be in the detail, but provided the majority of generators join the scheme, most of the UK’s power generation fleet will have a price that is not related to the global price of gas. Recent events demonstrate yet again the vulnerability of fossil fuel prices to geopolitical events that are impossible to predict.’
Not everyone was so positive. Trevor Wills, CEO of Pulse Clean Energy, said: ‘Direct market intervention can cause unintended outcomes which will be difficult to reverse. Distorted price signals are bad for consumers, producers, investors and businesses as they can create gaps which require further intervention to address. We need to avoid a game economic whack-a-mole that ends up slowing the very investment and energy scale-up that the country needs to enable future competitiveness and security.’
‘The issues we currently face on curtailment, grid economics and investment will remain. These are the issues we need to address. We welcome the engagement on Reformed National Price which the government has also announced and believe that this is the way forward. Without comprehensive market reform, where we can look at the whole picture and make some tough decisions, this proposal risks doing more harm than good.’
