High electricity bills targeted in planned shakeup to energy pricing

The government has announced a plan to weaken the link between electricity and volatile gas prices, which it says will better protect consumers from energy shocks triggered by international conflicts. The government wants some older renewable energy generators to move to fixed-price contracts, rather than the current system, which often pays them based on the variable price of gas. It hopes this switch will take place within the next year, so that electricity prices would not be so prone to sudden rises in fossil fuel prices. The government has not put a number on the savings but believes they could be "significant". The Conservatives said Labour's targets would raise bills. "We need to get off the fossil fuel rollercoaster – this will make energy bills more stable and take the pressure off family budgets," Sir Keir Starmer said. Energy secretary Ed Miliband added that the government was "doubling down on clean power, to give our country energy security and bring down bills for good". Even though renewable energy is generating more electricity than ever before, the relatively cheap running costs of wind and solar are not fully reflected in people's bills. That is partly because the price of electricity on the wholesale market is set, under the current system, by the last unit of electricity needed to meet demand at any given time. In Britain, that last unit is often gas-generated electricity – which means that when gas prices spike, so do electricity bills. The government has decided – for now – against revamping the entire system, with gas still playing an important role when the Sun isn't shining and the wind isn't blowing. But the government wants to shift older, clean energy projects – which account for about one-third of Britain's electricity generation - on to fixed-price contracts. That would bring them in line with more recent renewable energy developments, and analysts say it would better protect households against fossil fuel price spikes. The government does not have a firm estimate for savings on bills, but says it is confident it will save people money. The 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 about a year's time. The government has also announced increases to the so-called windfall tax on electricity generators, which was introduced in 2023. It says "excess profits" will now be taxed at 55%, up from 45%. The tax applies to some generators with older renewable energy contracts, who would otherwise make large profits when gas prices spike. The government hopes that the threat of a tax increase will incentivise these generators to make the voluntary switch to fixed-price contracts, which would not be taxed in this way. It also says the extra tax will help it to support households with the cost of living. Miliband has also announced plans to amend planning laws to make it easier for those without a driveway to charge electric cars and to enable more businesses to install solar panels. In response, shadow energy secretary Claire Coutinho accused Miliband of "piling on cost after cost onto people's electricity bills", pointing to taxes and levies on bills on top of wholesale prices. "If we want people to use electricity, then we need to make it cheap," she said. Liberal Democrat energy spokesperson Pippa Heylings said the government should act and break the link between electricity and gas prices. "We have consistently argued that if Britain is generating more and more cheap renewable electricity, households should feel the benefit in lower bills," she said. Green Party energy spokesperson Carla Denyer said she was "relieved" to hear the plans but accused the government of being too slow to act. "It is nearly two years since the election - two years in which they could have prevented a crisis like this rather than just respond to it," she said. Plaid Cymru also welcomed the proposed changes but called for the government to go further.