Written By: Graham Paul – Service Delivery Director
With over twenty years’ experience in the UK energy sector, Graham leads service delivery and operational governance across TEAM Energy’s energy management, carbon and compliance services, supporting organisations to embed resilient, data‑led energy strategies.
Executive Summary
The UK government has announced new measures aimed at weakening the link between gas and electricity prices following renewed volatility in global fossil fuel markets. While the reforms stop short of radical market restructuring, they reinforce a clear direction of travel for UK energy management focusing on a greater reliance on fixed‑price and low‑carbon generation to improve price stability for businesses and households.
For organisations focused on energy management in the UK, these changes highlight the growing importance of cost control, risk reduction and long‑term planning within a volatile energy landscape.
This short video provides an expert‑led summary of the key themes explored in this market briefing, drawing on policy developments, independent analysis and our experience supporting organisations across public and private sector portfolios to explain what recent gas and electricity price reforms mean in practice.
Why Gas Still Sets Electricity Prices
Electricity prices in Great Britain are typically set by gas‑fired power stations under the marginal pricing model used across most European power markets. This means spikes in gas prices continue to flow through directly into electricity costs, even when a significant proportion of electricity is generated from cheaper renewable sources.
While this link has weakened in recent years due to the expansion of renewables supported by Contracts for Difference (CfDs), gas still sets the wholesale electricity price in a majority of hours. For organisations managing energy at scale, this creates ongoing exposure that effective business energy management strategies must address.
What the Government is Proposing
The government’s approach focuses on older renewable and nuclear generators that are not covered by fixed‑price CfDs. These assets currently earn the wholesale electricity price alongside subsidy payments, meaning high gas prices can lead to windfall revenues.
Key measures include:
- An increase in the Electricity Generator Levy, raising the windfall tax on specific generators
- Encouraging voluntary fixed‑price contracts for older renewables, moving more generation away from gas‑indexed pricing.
By shifting more generation onto fixed prices, the government aims to stabilise electricity costs and reduce exposure to gas price shocks. Over time, this is expected to support more predictable pricing outcomes which is a key objective for organisations investing in long‑term energy management solutions.
Further detail on the policy proposals is set out in the Department for Energy Security and Net Zero announcement.
What is Not Being Proposed
Despite earlier speculation, the government has ruled out more radical structural reforms, including:
- Splitting the electricity market into “green” and “gas” pools
- Introducing pay‑as‑bid pricing
- Moving gas power stations into a strategic reserve.
While these options could have resulted in faster decoupling, they were judged likely to distort market signals and undermine investment in flexibility, storage and renewables, all of which play an increasingly important role in modern energy management.
Expected Impact on Prices and Markets
For commercial energy users, the reforms reinforce an existing trend: electricity prices will remain volatile in the short term, while long‑term stability will depend on how effectively organisations manage energy risk through procurement, flexibility, and decarbonisation measures.
Supporting Industry Perspective: What the Market is Saying
Industry and policy experts broadly view the government’s announcement as a measured but incremental shift, rather than a wholesale reform of the electricity market. Independent analysis, including commentary published by Carbon Brief suggests that while the proposals mark a significant policy signal, the measures are expected to weaken rather than fully sever the link between gas and electricity prices in the near term, with more structural change dependent on longer‑term market reform and renewable deployment. Drawing on our experience supporting organisations across public and private sector portfolios this view is supported by our team of energy management experts.
Dhara Vyas, Chief Executive of Energy UK, said that decoupling electricity prices from gas will happen “over time” as renewables continue to grow their share of the system, reducing the frequency with which gas sets the market price.
Implications for Businesses and Energy Managers
For organisations managing energy across complex, multi‑site estates the announcement has several practical implications for business energy management:
- Short‑term market volatility remains a structural feature of the system
- Fixed‑price contracts, flexible demand, and on‑site generation are becoming increasingly valuable
- Exposure to gas prices represents a growing strategic and financial risk.
As renewable capacity expands and gas sets the market price less frequently, organisations with robust energy management solutions will be better positioned to control costs, reduce risk and support their wider decarbonisation goals.
What Organisations Should Consider Next
Further details on the proposed fixed‑price contracts are expected later in 2026, alongside consultation on eligibility and pricing. Take‑up among older renewable generators will be critical in determining how far the measures succeed in weakening the link between gas and electricity prices.
More broadly, the direction of travel for energy management in the UK is reducing dependency on gas through smarter procurement, flexibility and low‑carbon generation making it a central part of the country’s long‑term energy resilience.