Chancellor Rachel Reeves has announced that she and Energy Secretary Ed Miliband are exploring ways to decouple electricity prices from gas costs in the UK. Under the current marginal cost pricing model, gas almost always sets the price of electricity, meaning high gas prices lead to higher electricity bills even when production costs remain unchanged.
Speaking in Washington, Reeves said: “This is something that I’ve been attracted to for quite some time, delinking electricity and gas prices. At the moment, when gas prices are high, we end up paying more for our electricity, even though the cost of producing it doesn’t change.” She added that she and Miliband are working on a practical solution and hope to provide more details within days or weeks.
Miliband has long advocated for Labour’s energy policies and a shift to renewables as a way to move the UK off the “fossil fuel rollercoaster”. According to the Department for Energy Security and Net Zero, renewables have already reduced the time gas sets the wholesale electricity price by about a third since the early 2020s.
Dhara Vyas, chief executive of Energy UK, said decoupling would come gradually with the transition to clean power. “Over time, that will decrease as we get more renewables on to the system,” she noted.
Reeves also discussed North Sea oil and gas tiebacks, which the government is encouraging investment in. She said: “I announced in the budget last year that we were going to allow tiebacks. We’re now working through pretty intensely the technical details with the energy companies.”
Greenpeace has proposed moving gas plants into a regulated asset base to make gas a strategic reserve and reduce its impact on market prices. Its UK head of politics, Ami McCarthy, said: “It’s absurd to let volatile gas dictate the cost of electricity in this country… As our proposal shows, we could be saving billions every year by taking control of our electricity prices away from the gas industry.”
