In a major intervention, Energy Secretary Ed Miliband will overhaul the system
Government officials project the reforms could deliver savings of between £50 and £100 annually per household(Image: brizmaker via Getty Images)
Households could see their electricity bills fall by up to £100 a year under sweeping reforms designed to end Britain’s dependence on volatile gas prices.
In a major intervention, Energy Secretary Ed Miliband will overhaul the system that links the price of electricity to expensive gas – a mechanism long blamed for driving up bills even when cheaper renewable power is available. The move comes as ministers scramble to shield families from global turmoil, with conflicts in the Middle East and Ukraine exposing how international gas markets can send UK energy costs soaring.
Under the plans, the Government will expand the use of long-term fixed-price contracts for renewable and nuclear generators. This means more electricity will be sold at stable rates, rather than fluctuating in line with gas prices. Officials estimate the changes could save households between £50 and £100 a year, while also making bills far less vulnerable to sudden spikes.
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.”
At present, gas still sets the price of electricity around 60% of the time – despite renewables and nuclear making up a growing share of Britain’s power mix. That means even when cheaper wind or solar energy is being generated, households can end up paying more because prices are dictated by the cost of gas-fired power stations.
The Government said this “unfair” system has left families exposed to crises beyond their control, with energy bills rising sharply during periods of geopolitical instability.
To tackle this, ministers will offer voluntary fixed-price deals – known as Contracts for Difference – to existing renewable generators not already on such arrangements. These contracts guarantee a set price for electricity, insulating both producers and consumers from market volatility.
Around a third of Britain’s electricity supply could be brought under these more stable arrangements. At the same time, Chancellor Rachel Reeves will increase the Electricity Generator Levy from 45% to 55%, targeting what ministers describe as “exceptional profits” made by generators during gas price spikes.
Ms Reeves said: “Hardworking British families and businesses should not bear the brunt of global gas price shocks while electricity generators are making exceptional profits.”
The Treasury insists the higher levy will help fund support for households facing rising energy costs, particularly as tensions in the Middle East continue to push up prices. Ministers argue the reforms mark a decisive shift towards a cleaner, more secure energy system – with less reliance on imported fossil fuels.
Mr Miliband said Britain must learn the lessons of recent crises, warning: “The era of fossil fuel security is over, and the era of clean energy security must come of age.”
Alongside the pricing overhaul, the Government unveiled a raft of measures aimed at cutting bills further, including bigger grants for heat pumps, faster installation of solar panels on social housing and public buildings, and reforms to speed up renewable energy projects.
There are also plans to make it easier for households – including renters and those without driveways – to install EV chargers, solar panels and low-carbon heating. Ministers believe the combined package will not only reduce bills in the short term but also protect families from future shocks as Britain transitions to homegrown energy.
