The government will announce plans on Tuesday to weaken the link between electricity and volatile gas prices, which it says will better protect consumers from energy shocks caused by international conflicts.
The government wants to move some older renewable energy generators to fixed-price contracts instead of the current system, which often pays based on the variable price of gas.
It hopes that this switch will happen within the next year, so that electricity prices are not likely to rise suddenly due to the price of fossil fuels.
The government has not put a number on the savings but believes they could be “significant”. The Conservatives said Labour’s target would increase bills.
The changes will be announced by Chancellor Rachel Reeves and Energy Secretary Ed Miliband in separate statements on Tuesday.
“For the UK and many other countries, clean energy is now the only path to financial security, energy security and national security,” Miliband said in a speech.
He is expected to call on the government to “double down” on its clean power push, arguing that “our action must now be faster, deeper and broader” in response to the war in the Middle East, as well as to tackle climate change.
Even though renewable energy is producing more electricity than ever before, the relatively cheap running costs of wind and solar are not fully reflected in people’s bills.
That’s partly because the price of electricity in the wholesale market is, under the current system, set by the last unit of electricity needed to meet demand at any given time.
In the UK, that last unit is often gas – which means that when gas prices go up, so do electricity bills.
While the government has – for now – decided against overhauling the entire system, gas still plays an important role when the sun isn’t shining and the wind isn’t blowing.
But the government wants to move older, clean energy projects – which account for around a third of Britain’s electricity generation – to fixed-price contracts.
That would bring them in line with recent renewable energy developments, and analysts say it would better protect households from rising fossil fuel prices.
The government does not have concrete estimates for the savings on the bills, but it believes it will save the public money.
Plans to weaken the link between electricity and gas prices will be subject to consultation, but the government believes the changes could take place in about a year’s time.
On Tuesday, the chancellor may announce an increase in the so-called windfall tax on electricity generators that came into force in 2023. The tax applies to some generators with older renewable energy contracts, who stand to make huge profits when gas prices rise.
The government hopes that the threat of tax increases will encourage these generators to make a voluntary switch to fixed price contracts, which are not taxed this way.
Miliband will also announce plans to amend planning laws to make it easier for those without driveways to charge electric cars and enable more businesses to install solar panels.
In response, shadow energy secretary Claire Coutinho accused Miliband of “piling cost after cost on people’s electricity bills”, pointing to taxes and charges on bills on top of wholesale prices.
“If we want people to use electricity, we need to make it affordable,” she said.
Pippa Hellings, the Liberal Democrats’ energy spokeswoman, said the Government must act and break the link between electricity and gas prices.
“We have consistently argued that if the UK is generating more and more cheap renewable electricity, households should feel the benefit in lower bills,” she said.
Green Party energy spokeswoman Carla Denyer said she was “relieved” to hear the plans but accused the government of being slow to act.
“It’s been almost two years since the election — two years in which they could have prevented a crisis like this instead of reacting to it,” she said.
Plaid Cymru also welcomed the proposed changes but urged the government to go further.
“As long as electricity prices are linked to the volatile gas market, households and businesses will continue to pay the price,” said its energy spokesman Linos Medi.
Reform UK and the SNP have been contacted for comment.
Northern Ireland is part of a separate energy market.
[BBC]
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