In April 2026 the government said it was moving to break the link between gas and electricity prices, offering voluntary long-term fixed-price contracts to existing low-carbon generators that are not already on fixed-price arrangements1. The measures were published by the Department for Energy Security and Net Zero3. The change targets the marginal pricing system, under which the most expensive source needed to meet demand sets the price paid to all generators, and that source is usually gas3.
Around 30% of UK electricity generation sits on the older Renewables Obligation support mechanism, whose generators receive a subsidy on top of a wholesale price that still tracks gas3. The government is offering those legacy generators a voluntary move onto a new fixed-price Wholesale Contract for Difference, with a formal allocation process planned for 20273. Aira reports the contracts would cover around a third of Britain's power supply, and that the Electricity Generator Levy would rise from 45% to 55%, taxing excess profits when gas prices spike2.
Gas set the wholesale electricity price around 90% of the time in the early 2020s and around 60% today; the government estimates this will fall to around half by 2030 on the current trajectory3. Around 20% of generation currently sits on fixed-price Contracts for Difference3. Heat Geek describes the direction as right but says meaningful bill relief is two to three years away at minimum3.
"the era of fossil fuel security is over, and the era of clean energy security must come of age."
Separately, the House of Lords Library records that action to take £150 off the average household energy bill came into effect in April 2026, and that electricity bills would be cut by up to 25% for over 10,000 businesses through the British industrial competitiveness scheme, which took effect on 1 April 20261. It also records that Ofgem announced its price cap for 1 July to 30 September 2026 on 27 May 2026, with the electricity cap up 5% and the gas cap up 24%, an average rise of 13%; a typical household on direct debit paying £1,862 a year would see an increase of £2211.
| Measure | Detail |
|---|---|
| Wholesale CfD contracts | Voluntary, for legacy Renewables Obligation generators3 |
| Allocation process | Planned for 20273 |
| Electricity Generator Levy | Rising from 45% to 55%2 |
| Gas setting the price | Around 90% in the early 2020s, around 60% today, around half expected by 20303 |
Why it matters for households
The price a household pays for electricity is set by the most expensive generator called on to meet demand, so gas prices feed through even to homes that use no gas3. Moving generation onto fixed-price contracts reduces how often that happens, which points to a lower and more stable electricity price over time rather than an immediate cut3. The House of Lords Library notes that domestic energy costs form 6% of total household expenditure on average, but 10% for the lowest income decile, and that energy debt has doubled since 2020 to £4.5bn1. It also records that network charges and green levies account for 20% and 6% of the rise in bills since pre-crisis levels, compared with 54% due to higher wholesale prices1. For a home weighing electrified heating, the running cost case turns on the gap between gas and electricity prices and on system efficiency; Heat Geek states that for gas homes the case is not universally favourable today but is improving, while for oil and LPG homes it is already favourable at current fuel prices3. Aira states that heat pumps are around three to four times more efficient than a gas boiler but do not always deliver as much heating bill savings in the UK as elsewhere2.
What happens next
A formal allocation process for Wholesale Contracts for Difference is planned for 20273. The government expects gas to set the electricity price around half of the time by 2030 on the current trajectory3. The House of Lords is scheduled to consider a question for short debate on why UK electricity prices are among the highest in the OECD on 4 June 20261.
Sources3 cited
- Electricity prices in Great Britain - House of Lords Library, lordslibrary.parliament.uk
- Why Are Electricity Prices Linked to Gas? What’s Changing in the UK | Aira, airahome.com
- Why Gas Still Sets Your Electricity Price (and When That Changes) | Heat Geek, heatgeek.com