The UK government has set out plans to weaken the long-standing link between gas prices and electricity bills, a structural issue that has left households exposed to global energy shocks even as renewable generation has grown.
Announced by the Department for Energy Security and Net Zero, the proposals centre on shifting more of the electricity system onto fixed-price contracts, insulating consumers from the volatility of international gas markets. The policy response follows repeated price spikes in recent years, most notably after the Russian invasion of Ukraine and more recent instability in the Middle East, both of which drove up wholesale gas prices and, in turn, electricity costs.
At present, electricity prices in Great Britain are still largely set by the marginal cost of gas-fired generation. Even when a significant share of power comes from cheaper renewables or nuclear, the overall market price rises when gas prices spike. The government estimates that gas set electricity prices around 90% of the time in the early 2020s; that figure has since fallen to roughly 60%, but the exposure remains substantial.
The proposed solution is to expand the use of long-term fixed-price mechanisms, effectively extending the logic of Contracts for Difference to a broader share of existing renewable generation. Around a third of the UK’s electricity supply, currently exposed to wholesale market pricing, could be brought under these arrangements on a voluntary basis. In theory, that would stabilise costs for consumers while offering generators predictable revenues.
Alongside this, the government has moved to increase the Electricity Generator Levy from 45% to 55%, extending its duration in an attempt to capture a greater share of what it describes as “extraordinary” profits during periods of high gas prices. The additional revenue is intended to support households and businesses facing higher energy costs.
The direction of travel is clear. Ministers, including Keir Starmer and Ed Miliband, are positioning the reforms as part of a broader shift away from fossil fuel dependence and towards a “clean energy security” model, where domestic renewables play a larger role in shielding households from external shocks.
For homeowners, however, the key question is not the policy intent but the outcome.
Breaking the link between gas and electricity prices has been discussed for years, and while the logic is widely accepted, the implementation is complex. Moving generators onto fixed-price contracts requires careful calibration to ensure value for money, avoid overcompensation, and maintain investment incentives. The voluntary nature of the scheme also raises questions about uptake, particularly if market conditions shift.
There is also the issue of timing. Even if the reforms are successful, the impact on household bills is unlikely to be immediate. Much of the benefit depends on how quickly contracts are adopted, how the wholesale market evolves, and how savings (if realised) are passed through to consumers.
Alongside these structural changes, the government has reiterated its commitment to electrification, including an increase in grants for heat pumps in homes currently using oil and LPG, taking support up to £9,000. It has also signalled further reforms to planning rules to make it easier to install technologies such as solar panels, electric vehicle chargers and heat pumps, particularly in flats and rented properties.
Taken together, the measures form part of a broader attempt to reshape the UK’s energy system around electricity rather than gas. For households, that transition is already underway, whether through heat pumps, solar installations or changes in how energy is priced.
The risk is that policy ambition continues to outpace delivery. The UK has seen multiple schemes aimed at reducing energy costs and improving efficiency, not all of which have delivered as intended. Homeowners, in particular, have learned to treat announcements with caution, especially when the benefits depend on complex market reforms rather than direct, visible support.
The government’s latest intervention acknowledges a real and persistent flaw in the energy system. Whether it succeeds in fixing it (and whether households feel the difference in their bills) will depend on execution, not intent.
For now, the link between gas and electricity prices is being challenged more directly than before. But it has not yet been broken.
This decision is fraught with the risk of legal challenge. If you were a generation company owning 8 solar farms which have been delivering £½m profit each for the past decade, then why would you want to change to fixed price? Of course, NESO might be ‘minded’ to buy less power from you in the future, but would that be permissible? Generation Companies were allocated a number in the Supply Queue when they were first given an Offer to Connect. So the early sites enjoy a contractual precedence over late-comers. They will be digging in, and only a very large compensation package would entice them to sign a new fixed-price contract. Large compensation awards doesn’t equate to lower costs for consumers.