Government to propose electricity price changes in clean power push

The government is to announce on Tuesday a plan to weaken the link between electricity and volatile gas prices, which it says will better protect consumers from energy shocks triggered by international conflicts.

The government wants some older renewable energy generators to move to fixed-price contracts, rather than the current system, which often pays them based on the variable price of gas.

It hopes this switch will take place within the next year, so that electricity prices would not be so prone to sudden rises in fossil fuel prices.

The government has not put a number on the savings but believes they could be "significant". The Conservatives said Labour's targets would raise bills.

The changes will be announced by Chancellor Rachel Reeves and Energy Secretary Ed Miliband in separate statements on Tuesday.

"For Britain and so many other countries, clean energy is now the only route to financial security, energy security and national security," Miliband will say in a speech.

He is expected to call for the government to "double down" on its clean power push, arguing that "our action must now be faster, deeper and more wide-ranging" in response to the war in the Middle East, as well as to tackle climate change.

Even though renewable energy is generating more electricity than ever before, the relatively cheap running costs of wind and solar are not fully reflected in people's bills.

That is partly because the price of electricity on the wholesale market is set, under the current system, by the last unit of electricity needed to meet demand at any given time.

In Britain, that last unit is often gas – which means that when gas prices spike, so do electricity bills.

The government has decided – for now – against revamping the entire system, with gas still playing an important role when the Sun isn't shining and the wind isn't blowing.

But the government wants to shift older, clean energy projects – which account for about one-third of Britain's electricity generation - on to fixed-price contracts.

That would bring them in line with more recent renewable energy developments, and analysts say it would better protect households against fossil fuel price spikes.

The government does not have a firm estimate for savings on bills, but says it is confident it will save people money.

The plans to weaken the link between electricity and gas prices will be subject to consultation, but the government believes the changes could be in place in about a year's time.

On Tuesday the chancellor could also announce increases to the so-called windfall tax on electricity generators, which was introduced in 2023. The tax applies to some generators with older renewable energy contracts, who would otherwise make large profits when gas prices spike.

The government hopes that the threat of a tax increase will incentivise these generators to make the voluntary switch to fixed-price contracts, which would not be taxed in this way.

Miliband will also announce plans to amend planning laws to make it easier for those without a driveway to charge electric cars and to enable more businesses to install solar panels.

In response, shadow energy secretary Claire Coutinho accused Miliband of "piling on cost after cost onto people's electricity bills", pointing to taxes and levies on bills on top of wholesale prices.

"If we want people to use electricity, then we need to make it cheap," she said.

Liberal Democrat energy spokesperson Pippa Heylings said the government should act and break the link between electricity and gas prices.

"We have consistently argued that if Britain is generating more and more cheap renewable electricity, households should feel the benefit in lower bills," she said.

Green Party energy spokesperson Carla Denyer said she was "relieved" to hear the plans but accused the government of being too slow to act.

"It is nearly two years since the election - two years in which they could have prevented a crisis like this rather than just respond to it," she said.

Plaid Cymru also welcomed the proposed changes but called for the government to go further.

"As long as electricity prices are tied to volatile gas markets, households and businesses will continue to pay the price," its energy spokesperson Llinos Medi said.

Reform UK and the SNP have been contacted for comment.

Northern Ireland is part of a separate energy market.

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