Government moves to break link between gas and electricity prices with new levy and fixed contracts

The government has set out sweeping plans to decouple electricity prices from the volatile international gas market, raising the Electricity Generator Levy and offering new fixed-price contracts to renewable energy producers in a move it says will better protect households and businesses from future energy crises.

Under the measures announced on 21 April, the Electricity Generator Levy will be raised immediately from 45% to 55% and its duration extended, taxing the excess profits that generators earn when gas price spikes inflate electricity costs. The additional revenue, ministers said, will be used to support households and businesses grappling with the cost-of-living impacts of instability in the Middle East.

Alongside the levy increase, the government will offer voluntary long-term fixed contracts — known as Wholesale Contracts for Difference — to existing low-carbon generators not already on fixed-price arrangements. These contracts cover roughly a third of Britain's power supply and would see generators exchange their current wholesale revenues, which are linked to gas prices, for a guaranteed fixed price. The government said contracts would only be offered where they represent clear value for money for consumers, with a consultation planned later this year and an allocation process expected in 2027.

Prime Minister Keir Starmer said: "We need to get off the fossil fuel rollercoaster — this will make energy bills more stable and take the pressure off family budgets. When global gas prices spike, people here shouldn't be picking up the tab." Energy Secretary Ed Miliband added: "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."

Chancellor Rachel Reeves said hardworking families and businesses should not bear the brunt of global gas price shocks while electricity generators make exceptional profits. "Increasing the EGL to 55% will help to break the link between high gas prices and high electricity prices — offering households and businesses stronger protection against future energy shocks," she said.

The scale of the problem

The government said that while much of Britain's electricity now comes from cheaper renewables and nuclear, around 30% of the country's power supply remains exposed to wholesale prices set by gas. When wars, geopolitical tensions or supply disruptions abroad push up global gas prices, electricity bills rise with them. Britain has made progress — gas set the price of electricity around 90% of the time in the early 2020s, compared with around 60% today — but ministers acknowledged the transition is far from complete. Through the clean energy mission, it is estimated gas will set the wholesale price around half of the time by 2030.

Wider package of measures

The announcement came alongside a broad package of additional measures. The government is increasing the Boiler Upgrade Scheme grant to £9,000 for properties heated by oil and LPG, providing an additional £100 million for the Social Housing Fund to deliver up to 57,000 solar installations this financial year, and backing Great British Energy to extend rooftop solar to a further 100 schools and colleges with up to £40 million of investment.

Ministers also announced plans to unlock up to 10 gigawatts of renewable energy capacity on public land — including brownfield sites, industrial land and railway sites — potentially powering the equivalent of around five million homes. A major overhaul of planning, land access and grid connection processes was outlined, described as the biggest since the start of the government's clean energy mission.

Further measures include plans to make it easier for renters and flat-dwellers to install electric vehicle chargers, solar panels and heat pumps through permitted development rights and building regulations changes. New funding of £90 million was announced to support heat pump manufacturing in the UK, with the government saying this would create around 2,000 British jobs. A Reformed National Pricing Delivery Plan was also published, suggesting smarter planning and faster delivery of electricity infrastructure could unlock up to £20 billion in benefits between 2030 and 2050.

The government said it is monitoring the impact of the current crisis on energy bills and will be ready to step in with targeted support where necessary.