Post: UK unveils measures to shield electricity prices from gas price volatility

UK unveils measures to shield electricity prices from gas price volatility

The government has announced new measures to reduce the impact that gas prices have on the price of electricity.

Announced on 21 April, plans include voluntary long term fixed contracts that will be offered to existing low-carbon generators not on fixed price contracts, as well as an updated Electricity Generators Levy. According to the government, these measures will further reduce the share of electricity exposed to gas price shocks and provide generators the economic incentive to move on to fixed contracts not linked to gas prices. 

The fixed contracts, known as Wholesale Contracts for Difference (WCfD) will be introduced voluntary later this year, with an intention to run an allocation process in 2027. A WCfD would offer existing eligible generators, not already contracted under a CfD, the option to accept a fixed price for the electricity they generate. Generators accredited under the Renewables Obligation (RO) would continue to receive support via the RO in the way they do currently with only their wholesale revenues being exchanged for a fixed price CfD.  

On the levy update, the government says that immediate action will be taken to tax excess profits through the Electricity Generator Levy by raising the rate from 45% to 55%, ensuring an increased proportion of the extraordinary revenues generated when the gas price spikes is available to government. These funds will be used to support businesses and households, minimising with the impacts on cost of living brought about by the conflict in the Middle East.

Energy secretary Ed Miliband said: “as we face the second fossil fuel shock in less than five 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.”