UK Moves to Break Link Between Gas and Electricity Prices
The UK government has announced new plans to reduce the impact of volatile gas prices on electricity bills, aiming to make costs more stable for households and businesses.
Currently, electricity prices are largely set by gas, meaning global price shocks—such as conflicts or supply disruptions—can drive up bills even when much of the UK’s power comes from cheaper renewables and nuclear.
To address this, the government is expanding the use of long-term fixed-price contracts for renewable and low-carbon generators. These contracts lock in stable prices, reducing exposure to gas-driven market fluctuations.
Alongside this, the Electricity Generator Levy will increase from 45% to 55%, targeting excess profits made when gas prices spike and redirecting funds to support consumers.
Whether generators take up these contracts will depend on whether they offer stable and attractive returns. Fixed pricing provides certainty and protection from volatility, but limits the ability to benefit from higher wholesale prices. If generators expect gas and electricity prices to remain elevated, some may choose to stay exposed to the market rather than lock into fixed rates.
The policy is designed to “break the link” between gas and electricity prices, reducing how often gas sets the price. Gas currently determines prices around 60% of the time, down from about 90% in the early 2020s, with a target of around half by 2030—supporting a shift towards a more stable, domestically driven electricity system.