The government will announce a plan on Tuesday to weaken the link between electricity and fluctuating gas prices, saying it will better protect consumers from energy shocks caused by international conflicts.
The government wants some older renewable energy generators to move to fixed-price contracts rather than the current system, which typically pays them based on a variable price for natural gas.
It hopes the switch will happen within the next year so electricity prices will be less vulnerable to sudden increases in fossil fuel prices.
The government has yet to reveal specific figures for the savings but believes they could be “significant”. The Conservatives said Labour’s aim was to increase the bill.
The changes will be announced by Chancellor Rachel Reeves and Energy Secretary Ed Miliband in separate statements on Tuesday.
“For the UK and many other countries, clean energy is now the only way to achieve financial security, energy security and national security,” Miliband said in a speech.
He is expected to call on the government to “redouble its efforts” to promote clean energy, arguing that “our action must now be faster, deeper and broader” to deal with wars in the Middle East and combat climate change.
Although more electricity is generated from renewable energy than ever before, the relatively cheap running costs of wind and solar are not fully reflected in people’s bills.
This is partly because, under the current system, electricity prices in wholesale markets are determined by the last unit of electricity that meets demand at a given time.
In the UK, the last unit is usually gas – meaning when gas prices soar, so do electricity bills.
The government has decided not to revamp the entire system for now, and with no sun and no wind, natural gas still plays an important role.
But the government wants to convert older clean energy projects, which account for around a third of UK electricity generation, to fixed-price contracts.
That would bring them in line with recent renewable energy developments, which analysts say will better protect households from soaring fossil fuel prices.
The government did not have an exact estimate of the bill savings but said it was confident it would save people money.
Plans to weaken the link between electricity and gas prices will be subject to consultation, but the government believes the changes could be in place in around a year’s time.
On Tuesday, the chancellor is also likely to announce an increase in the so-called generator windfall profits tax due to be introduced in 2023. The tax applies to some generators with older renewable energy contracts that would otherwise make huge profits when gas prices soar.
The government hopes that the threat of higher taxes will incentivize these generators to voluntarily move to fixed-price contracts so that they are not taxed in this way.
Miliband will also announce plans to change planning laws to make it easier for people without driveways to charge electric cars and enable more businesses to install solar panels.
In response, shadow energy secretary Claire Coutinho accused Miliband of “putting costs on people’s power bills”, pointing to the tax on electricity bills in addition to wholesale prices.
“If we want people to use electricity, then we need to make it cheap,” she said.
Lib Dem energy spokesperson Pippa Heylings said the government should take action to break the link between electricity and gas prices.
“We have always believed that if the UK produces increasingly cheaper renewable electricity, households should feel the benefits of lower electricity bills,” she said.
Greens energy spokesperson Kara Denyer said she was “relieved” to hear the plans but accused the government of moving too slowly.
“It’s been almost two years since the election, two years in which they could have prevented a crisis like this rather than just reacted,” she said.
Plaid Cymru also welcomed the proposed changes but called on the government to take further steps.
Its energy spokesman Llinos Medi said: “As long as electricity prices are tied to an unstable gas market, households and businesses will continue to pay the price.”
Reform Britain and the SNP have been contacted for comment.
Northern Ireland is part of the independent energy market.
[BBC]
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