Breaking the gas grip: UK moves to stabilise energy bills and accelerate clean power

After years of volatility driven by global fossil fuel markets, the UK government has taken a decisive step to loosen the link between gas prices and electricity bills – an issue that has long left households and businesses exposed to international shocks beyond their control.

The announcement comes against a backdrop of renewed geopolitical instability and rising energy costs, reinforcing a hard-learned lesson from recent years: when gas prices spike globally, UK electricity bills often follow, regardless of how much power is generated from cheaper renewables and nuclear at home.

Now, ministers are aiming to change that dynamic. The latest package of reforms seeks to stabilise bills in the short term while accelerating the shift to a cleaner, more resilient energy system for the long term. 

Why gas still drives electricity prices

At the heart of the issue is the UK’s “marginal pricing” system. In simple terms, the final (and often most expensive) generator needed to meet electricity demand sets the price for the entire market. More often than not, that generator is a gas-fired power plant.

Despite the growth of renewables, gas still sets electricity prices around 60% of the time today, down from roughly 90% in the early 2020s. This means even low-cost renewable energy is sold at prices inflated by gas market volatility.

The result is that households and businesses continue to feel the impact of global fossil fuel shocks – even when much of the UK’s electricity is generated more cheaply. 

The plan to ‘break the link’

The government’s approach stops short of scrapping marginal pricing entirely but introduces targeted reforms to reduce its impact.

Central to this is the introduction of voluntary long-term fixed-price contracts – known as Wholesale Contracts for Difference – for existing low-carbon generators not already on such agreements. These generators account for roughly a third of Britain’s electricity supply.

By locking in stable prices for their output, the scheme aims to shield both producers and consumers from gas-driven price spikes. However, participation will be voluntary and subject to consultation, with contracts only offered where they represent clear value for money.

Alongside this, the government is tightening the Electricity Generator Levy, increasing the rate from 45% to 55%. This effectively acts as a windfall tax on generators benefiting from high wholesale prices, ensuring more of those profits can be redirected to support households and businesses during periods of high energy costs.

Together, these measures are designed to reduce the share of electricity exposed to gas price volatility while nudging generators toward more stable pricing models.

A step forward, but not the final fix

Reaction to the announcement has been mixed.

Many industry leaders and organisations see the reforms as a meaningful step in the right direction. There is broad agreement that reducing reliance on gas-linked pricing is essential for long-term energy security, affordability, and decarbonisation.

However, critics argue the changes do not go far enough. Good Energy CEO Nigel Pocklington likened the policy to “patching a leak rather than fixing the pipe,” noting that as long as gas continues to set prices a majority of the time, households will remain vulnerable to global shocks.

Others point out that the government’s own projections suggest only a modest reduction in gas influence over the next five years, raising questions about the pace of change. 

From crisis response to long-term resilience

The broader ambition is to move the UK away from what prime minister Sir Keir Starmer described as the “fossil fuel rollercoaster” and towards a system built on stable, homegrown energy.

Estimates suggest that, with continued progress, gas could set electricity prices only around half of the time by 2030 – a significant shift, though still leaving room for further reform.

For businesses and investors, the changes could also strengthen the case for electrification by improving price stability and predictability, key factors in long-term planning.

Moving the plans forward

Much of the detail, particularly around the design of the new fixed-price contracts, will be subject to consultation later this year, with implementation expected to follow in stages.

In the meantime, the government has signalled it will continue monitoring energy prices and stands ready to introduce targeted support if needed.

The direction of travel is unmistakable: a gradual but deliberate shift away from fossil fuel dependence, towards a cleaner and more controlled energy system.

Whether these measures prove sufficient – or simply a stepping stone to more fundamental reform – will depend on how quickly they translate into real-world bill reductions and resilience for households and businesses alike.