UK Reforms Aim to Decouple Electricity Prices from Gas

The British government announced measures on Tuesday to sever the connection between volatile gas prices and electricity costs, aiming to shield households and businesses from global energy shocks amid escalating tensions in the Middle East. The reforms target the current system where gas-fired power stations often dictate wholesale electricity prices, even when cheaper renewables dominate supply.

Under the plans, ministers will offer voluntary long-term fixed-price contracts, known as Contracts for Difference, to existing low-carbon generators not already on such agreements. These cover about one-third of Britain's electricity supply, primarily older wind and solar projects. The contracts guarantee stable prices, insulating consumers from gas market fluctuations that have driven up bills during recent crises, including the war in Ukraine and current conflicts involving Iran. Officials estimate the changes could reduce annual household electricity bills by 50 to 100 pounds.

To fund support for affected families, the government will immediately raise the Electricity Generator Levy on excess profits from 45 percent to 55 percent and extend its duration. This targets revenues...