The UK Pushes Long-Term Renewables Deals to Shield Against Gas Price Shocks

• The UK is moving to weaken the link between electricity costs and volatile gas prices, a structure that has kept power prices elevated, weighed on households, and reduced industrial competitiveness.
• Britain has among the highest electricity prices globally due to its energy market structure, where gas sets the price for most power generation. As a result, electricity costs remain closely tied to volatile gas prices, contributing to persistently high energy bills that have been further exacerbated by geopolitical shocks such as the Russia–Ukraine war and the Iran conflict in 2026.
• The government plans to offer voluntary long-term fixed contracts to older renewable energy generators, particularly wind and solar, so they are no longer paid prices linked to gas, helping reduce exposure to gas-driven price volatility.
• The reform is expected to cover around one-third of Britain’s power supply, as part of broader efforts to stabilise electricity prices and shield consumers from external energy shocks. The government will also increase the Electricity Generator Levy from 45% to 55%, aiming to capture excess profits and incentivise generators to shift to fixed-price contracts.
• While the reforms aim to lower bills and support economic growth, analysts note the impact may be limited, with gas still expected to set prices around 50% of the time by 2030, and business groups warning that policy uncertainty could weigh on investor confidence.
• In parallel, the government is looking to accelerate renewable energy deployment, including expanding projects on public land and streamlining planning and grid connections, as part of a broader push to reduce reliance on fossil fuels and improve energy security. The reforms signal a gradual shift toward decoupling electricity pricing from gas, but the limited scope suggests the UK will remain partly exposed to fossil fuel volatility in the medium term.

(Source: Reuters)