Labour Government Urged to Decouple Gas from Energy Prices to Slash Bills by £200
A leading thinktank has called on the Labour Party government to take decisive action to cut the link between gas prices and electricity bills, a move that could potentially save households up to £200 annually. The Common Wealth thinktank released a detailed report on Thursday highlighting how the ongoing conflict in Iran has driven up gas prices, with direct and avoidable impacts on energy costs for UK consumers.
Current System Leaves Consumers Exposed to Volatile Gas Markets
Under the existing energy pricing framework, gas sets the price of electricity a staggering 85% of the time, as recorded in 2024. This dependency means that fluctuations in the global gas market, exacerbated by geopolitical tensions such as the war in Iran, directly inflate electricity bills across the United Kingdom. Common Wealth argues that this crisis presents a critical test for the government's resolve and ambition in reforming the energy sector.
Proposed Single Buyer Model to Stabilise Prices
The report outlines a clear solution: implementing a "single buyer model" where the government instructs the National Energy System Operator (NESO) to purchase low-carbon power at fixed, predetermined prices instead of accepting gas-linked prices from the wholesale market. This approach would decouple electricity costs from the volatile and often inflated wholesale gas prices, establishing a more stable and affordable pricing structure for both households and businesses.
Mathew Lawrence, the director of Common Wealth, emphasised the urgency of the situation: "We know the solution. Stop gas setting the price of electricity and prevent renewable operators reaping a windfall. This crisis is a test of the government’s mettle. If they respond with ambition, they can lay the foundations for a more affordable and secure energy system, not just for today, but for the future."
Fixed Price Agreements for Renewable and Nuclear Assets
Specifically, the proposal recommends that NESO, in collaboration with the Low Carbon Contracts Company (LCCC), provide fixed price Power Purchase Agreements (PPAs) to existing low-carbon energy assets. This would include:
- £50 per megawatt-hour for renewables under the Renewables Obligation scheme
- £45 per megawatt-hour for hydroelectric power
- £55 per megawatt-hour for existing nuclear power plants
By fixing these prices at levels that reflect their actual production costs rather than gas market fluctuations, the model aims to eliminate windfall profits for renewable operators and pass the savings directly to consumers.
Expert Endorsement for Emergency Reforms
Donal Brown, an energy policy expert at the University of Sussex, supported the report's findings, criticising the current UK electricity market for leaving consumers "dangerously exposed to volatile gas prices." He added: "This report sets out a simple emergency reform: decouple electricity prices from gas by having the system operator purchase power at fair and fixed prices. By preventing windfall profits and stabilising prices, this approach could save billions and protect households from the next energy price crisis."
The Common Wealth report underscores a pivotal opportunity for the Labour government to enact meaningful energy market reforms that could deliver immediate financial relief to households while building a more resilient and sustainable energy infrastructure for the long term.
