Can Labour finally break gas’s grip on your bills?

John Healey’s budget contained signs of a shift in the government’s broader energy strategy, with the promise of substantial reforms in the prime minister’s forthcoming 10-year plan . This includes a new approach towards the levies and policy costs added to energy bills. Since around 2010, the cost of things such as support for low-carbon electricity generation and home retrofits has been passed on to energy users in the form of additional levies on their bills .

This has pushed up energy prices for households and businesses. Having already stopped some of these levies appearing on bills, the government has now announced it will add no new costs and introduce a new “cost control framework”. This thinking was on show in the budget: the cost of a new “gas-shipper obligation” that was due to be added to gas bills to fund new hydrogen projects will now be met from general taxation instead. Adam Bell, a partner and energy expert at consultancy PF Global, described this as a “genuine shift [and a] very, very positive sign that they want to move away from a system whereby you essentially use a stealth tax on the energy system to pay for other goals”.

The chancellor also announced that the government would take further steps to “break the grip of international gas prices on our bills”. One long-running frustration among policymakers is that despite the UK having expanded its renewable power generation, the market price for electricity is set by the most expensive generator required to meet demand at that moment, and quite a lot of the time that means gas-fired power plants. That leaves consumers exposed to volatility in international gas markets .

In addition, some older renewable generators are paid those higher gas-linked prices, even though their wind, solar or nuclear power is no more expensive to produce. The government is now consulting on proposals for a Wholesale Contracts for Difference (WCfD) scheme, which would enable – or encourage – those generators instead to switch to a fixed-price arrangement, as part of efforts to “de-link” electricity and gas prices. This is best thought of as a “price stabilisation” tool, said Callum MacIver, a research fellow at the University of Strathclyde, and as something that would “insulate electricity prices further from the impact of future gas price shocks”.

Removing some of the other subsidies provided to these legacy renewable generators would have greater potential to bring down bills, he added, but such efforts would come with legal risk and technical complications. Related articles: Trump boasts of boom, but voters may deliver a reckoning Labour cannot out-Farage Farage. Right to remain shouldn’t depend on your salary MacIver doesn’t think the budget marks a “massive change of direction”, but rather reemphasises a shift that was already taking place: towards “clean power, but not at any cost” .

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