Government Announces Action to Break the Link Between Gas and Electricity Prices

On Tuesday 21 April, the Government announced a new package of measures aimed at reducing the influence of volatile gas prices on electricity costs across Great Britain. The announcement comes amid continued instability in the Middle East, which has once again highlighted how heavily the UK remains exposed to international fossil fuel markets.

The Government stated that “Britain’s reliance on international fossil fuel markets leaves families and businesses exposed to volatile gas prices,” reinforcing its longer-term objective of improving energy security while protecting consumers from price shocks.

Key Measures Announced

A central part of the package is the proposal to offer voluntary long-term fixed-price contracts to existing low-carbon generators that are currently not operating under fixed-price arrangements. This is intended to provide greater pricing stability and reduce the extent to which power prices fluctuate in response to gas market volatility.

Alongside this, the Government will increase the Electricity Generator Levy from 45% to 55%. This additional revenue is expected to help fund support for families and businesses facing higher living costs resulting from the ongoing geopolitical pressures affecting global energy markets.

Further support has also been announced for decarbonisation and energy efficiency schemes, including:

• Increased funding for the Boiler Upgrade Scheme, with grants rising to a total of £9,000 for properties currently heated by oil and liquid petroleum gas (LPG)
• Additional funding for the Social Housing Fund
• New measures to streamline planning processes
• Accelerated renewable energy rollout across the public estate and educational sites

The Government has also confirmed that further details on Transitional Energy Certificates will be published in advance of forthcoming legislation.

Does This Truly Break the Link?

While these measures represent a meaningful step toward reducing the exposure of electricity prices to gas market volatility, they do not fully “break the link” between gas and electricity pricing.

The fundamental issue lies within the wholesale electricity market itself—specifically the marginal cost pricing model. In Great Britain, electricity prices are largely set by the marginal generator required to meet demand at any given time. More often than not, this marginal generator is a gas-fired power station.

This means that even when a significant proportion of electricity is being generated by lower-cost renewable or nuclear sources, the wholesale market price is still frequently determined by the cost of gas generation. As a result, wholesale electricity prices remain strongly influenced by gas prices, regardless of how much renewable generation is on the system.

Offering fixed-price contracts to low-carbon generators can reduce volatility for those generators and improve long-term market stability, but it does not fundamentally reform the pricing mechanism that links wholesale electricity prices to gas.

In short, while the Government is reducing some of the pressure gas prices place on electricity bills, the wholesale market itself remains structurally tied to gas through the marginal cost curve.

What This Means for Businesses

For businesses managing energy procurement, this announcement reinforces the importance of understanding both policy changes and wholesale market fundamentals. Renewable deployment and government intervention may help reduce long-term volatility, but short- and medium-term electricity pricing will continue to be heavily impacted by movements in gas markets.

This is particularly important for organisations planning contract renewals, budgeting for energy costs, or evaluating on-site generation and decarbonisation strategies.

We will continue to monitor the detail behind these announcements, particularly around Transitional Energy Certificates and any future reforms to wholesale market design.