The government has announced a plan to restructure energy bills, in an effort to protect households from spikes in global gas prices. Cheaper renewable sources are generating more power than ever before - nearly 30% of Great Britain's electricity in 2025 - but volatile international gas markets still shape what people pay for electricity. This is in part because the current system sets the cost of electricity on the wholesale market by the cost of the last unit needed to meet demand, usually a unit that is gas-generated.
This means that when wholesale gas prices spike, so do British energy bills. The government plans to weaken the link between electricity and gas prices through a separate renewable energy price, though this will be subject to consultation and the changes will take around a year to be implemented.
Prime Minister Keir Starmer said: "When global gas prices spike, people here shouldn’t be picking up the tab. Our focus is simple: easing pressure on household budgets now, while building a homegrown energy system that protects families from global instability in the years ahead."
Why do gas prices dictate the cost of electricity?
Energy pricing in the UK is complicated, with a separate market operating in Northern Ireland. In Great Britain, most energy generators sell the energy they produce on an open market, with electricity suppliers buying in advance for their customers to use later. Energy costs change daily based on the most expensive type of electricity needed at a given time. As renewable sources such as wind and solar are typically cheaper to produce, this means the market electricity price is usually set by the cost of a gas-produced unit of electricity.
Gas power stations produce electricity by burning gas and are more expensive to operate than wind or solar alternatives, plus they are beholden to the global gas market, as the UK is a net importer of gas. An exception to the market are more recent renewable energy developments, as these have been signed up to fixed-price production deals (known as a contract for difference) from launch since 2017.
This all means that consumers can pay the market cost of gas for renewable energy, even though wind and solar production is much cheaper. It also provides a windfall for renewable energy, biomass, and nuclear firms when gas prices rise. The government is now taking action to curb the impact of this system on energy bills.
What is changing?
The government's strategy consists of two strands. The first is to offer fixed-price contracts to renewable energy producers that currently receive subsidies. This will remove them from the marketplace and separate the price they are paid from gas prices. The second is to increase the Electricity Generator Levy from 45% to 55%. This is essentially a windfall tax on the profits of energy firms that are not on fixed-price deals, designed to incentivise firms to sign up to a fixed-price agreement.
The expectation is that a separate renewable energy price will lower the price of renewable electricity and reduce consumer bills, but this will ultimately depend on the price the government offers producers to sign up to its deals. Firms should be able to apply for the contracts next year, after a consultation process on the proposals.
Energy secretary Ed Miliband said: "As we face the second fossil fuel shock in less than 5 years, the lesson for our country is clear: The era of fossil fuel security is over, and the era of clean energy security must come of age. That’s why we’re doubling down on clean power, to give our country energy security and bring down bills for good."
There has been some criticism that the changes do not go far enough to unlink gas and electricity prices, especially as the government rejected more far-reaching proposals last year that would have split the wholesale market into regions that could vary pricing based on local supply and demand.
Are energy bills going up?
Leading energy market analytics firm Cornwall Insight expect typical annual household energy bills to increase by £195 this July, according to its latest predictions. The forecast suggests that under the new Ofgem price cap for the period of 1st July to 30th September, a dual-fuel household using a typical amount of gas and electricity would pay £1,836.84 a year. This is a significant jump from the latest confirmed energy price cap figure of £1,641.
The July increase is largely due to a surge in wholesale oil and gas prices, driven by the conflict in the Middle East. Wholesale energy prices have jumped significantly recently, though the actual energy price cap figure will ultimately depend on how the wholesale market performs across March, April, and May 2026. Ofgem is scheduled to officially set the July price cap on 27th May.
What are the government's other plans to reduce energy bills?
The main reason that the current Ofgem energy price cap fell by £117 was the government's decision to cut two green levies. This was announced as part of the Autumn Budget in 2025 and came into effect on 1st April 2026.
There is also a scheme to supply free or heavily discounted electricity for running energy-intensive appliances on sunny or windy weekends. You can read more in our article 'Households could get free electricity on sunny weekends'.
How to save money on your energy bills
If you are worried about a spike in energy bills, support is available. Your energy supplier may be able to help you arrange an affordable repayment plan if the cost of energy is becoming overwhelming, so it is best to contact them as soon as possible. If you receive benefits, you may also be able to clear your debt with your energy supplier via the Fuel Direct Scheme.
Finally, there are a number of charities and organisations that can provide free financial advice. We've provided links to a selection of the best websites below:
- MoneyHelper (previously the Money Advice Service)
- The money charity
- StepChange
- National Debtline
- Turn2us
- Citizens Advice
- Payplan
You can find more cost-saving tips by reading our article 'How to save money on your energy bills'.
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