Britain on Tuesday set out plans to weaken the link between the cost of electricity and global gas prices, as officials try to reduce domestic energy bills.
The plan would force wind and solar-power generators on to fixed contracts providing a third of Britain's energy needs.
The price of gas in the UK applies to all power generation including renewables, which has led to some of the highest electricity prices in the world. Prices soared after the start of the war in Ukraine and again now with the impact of the US-Iran war.
Energy Secretary Ed Miliband announced plans to start “delinking the electricity price from the gas price, so that actually we get the benefits of cheaper, cleaner power”.
“Electricity price is linked to the gas price and the benefits don't come back to consumers,” Mr Miliband said, speaking at the National Growth Debate.
“The reason our mission is even more important as a result of this crisis is it's the only way we avoid these disastrous impacts on the British people, British businesses and, indeed, the public finances.”
Wholesale gas costs are now 30 per cent higher as a result of the US-Iran war and domestic energy prices are expected to rise more than 10 per cent from July when the quarterly price cap is adjusted. This cast doubt over the Labour government's pledge to lower energy bills.
Dutch and British gas contracts fell on Tuesday morning as markets awaited further developments in US-Iran peace talks and as forecasts of warm temperatures weighed on demand.
New contracts
To weaken the link with gas prices, the government will offer voluntary, long-term contracts to existing renewable energy companies which are not already being paid a fixed price for their output.
The wholesale electricity price is set every 30 minutes by the cost of the last energy source used to ensure demand is met. So even if wind, solar and nuclear provide 99 per cent of the power needed, if gas-fired plants are needed to make up the remainder, then gas sets the price for every buyer and seller.
This method, known as marginal cost pricing, is used in Europe, the US and most of the world, but in the UK, gas is almost always needed to fill the gap.
“As we face the second fossil-fuel shock in less than five years, the lesson for our country is clear: the era of fossil fuel security is over and the era of clean energy security must come of age,” Mr Miliband said.
The government will also increase the Electricity Generator Levy – used to retrieve excess profits made by wind and solar generators when electricity prices jump due to shocks in the gas market – to 55 per cent from 45 per cent.
Mr Miliband also outlined plans to use parts of public land for renewable energy projects, including brownfield, industrial and railway sites, claiming this would allow up to 10 gigawatts of new capacity.
“We need to go faster and that means driving more renewables and nuclear, for example, renewables on public land,” he added.
The renewables industry was cautious in its reaction to the policy announcement. Nigel Pocklington, chief executive of Good Energy, said the move could end up as “patching a leak rather than fixing the pipe”.
“To bring bills down properly, we need to go further by stopping gas from setting electricity prices altogether,” he said.
Mr Miliband's package is designed to overhaul planning and land-use rules, speeding up grid connections and infrastructure upgrades. The new rules aim to make it easier for renters and apartment dwellers to install electric vehicle chargers, solar panels and heat pumps.
Others point to the poor connections between the UKs wind farms and the grid.
“Because of grid constraints, we pay wind farms to stop spinning, and then we pay again for expensive gas to replace the power we just switched off," Pierre Tabet, chief executive of energy startup VoltView, told The National.
"Our single national wholesale price ignores this entirely, because constraint costs don't show up in the wholesale market, they sit in balancing and land on bills through network charges."
The global wind industry installed a record 165 gigawatts of new capacity in 2025, up 40 per cent from 2024.
War impact
UK gross domestic product is estimated to be “half as energy-intensive as the world average” but that has not spared the country from spillover from the Iran war.
The International Monetary Fund and the Organisation for Economic Co-operation and Development downgraded UK growth by 0.5 percentage points this year – the biggest markdown of any member of the G7 group of advanced economies.
The OECD blamed Britain’s “exposure” to gas, which accounts for 62 per cent of household energy consumption, which is a double whammy for growth given a “heightened sensitivity” of UK interest and mortgage rates to global developments.
