UK Chancellor Aims to Break Link Between Gas and Electricity Prices

UK Chancellor Rachel Reeves has announced that she and Energy Secretary Ed Miliband are working to break the link between gas prices and electricity costs in the UK. Currently, under the marginal cost pricing model, gas prices almost always set the price of electricity.

Speaking in Washington, Reeves explained that when gas prices are high, electricity costs increase even though the cost of producing electricity doesn't change. The goal is to delink these prices, especially as renewable energy makes up a larger part of the UK's energy mix.

Renewables have already reduced the time gas sets the wholesale price of electricity by about a third since the early 2020s, according to the Department for Energy Security and Net Zero. The head of Energy UK, Dhara Vyas, noted that decoupling electricity prices from gas will occur gradually with the transition to clean power.

Reeves also discussed encouraging investment in North Sea oil and gas tiebacks, which involve using existing infrastructure to exploit larger areas of oil and gas. This approach is seen as the quickest way to bring more oil and gas online.

Greenpeace has proposed moving gas plants into a regulated asset base to make gas a strategic reserve and reduce its impact on market prices. The organization argues that this could save billions annually and benefit from cheaper, homegrown renewables.