The UK government announced plans to raise the Electricity Generator Levy from 45% to 55% and offer long-term fixed-price contracts to older renewable energy projects as part of a broader effort to shield households from gas price volatility. The move comes amid ongoing instability in the Middle East, which has renewed concerns about the impact of international fossil fuel markets on domestic energy bills.
Officials said the increased levy will target excess profits made by generators when gas prices spike, ensuring a larger share of extraordinary revenues is available to support households and businesses with the cost of living. The government estimates that about a third of Britain’s power supply — roughly 30% — remains exposed to wholesale prices set by gas, despite the growth of cheaper renewables and nuclear.
Under the plans, owners of legacy wind and solar farms that currently earn subsidies on top of market prices will be invited to sign voluntary fixed-price contracts. Those who do not opt in will face the higher windfall tax rate, creating a financial incentive to decouple their revenues from volatile gas markets.
The BBC reported that the government does not yet have a firm estimate for potential savings on household bills but expressed confidence that the changes will save people money. It noted that the so-called windfall tax was introduced in 2023 and applies to generators with older renewable contracts that profit when gas prices rise.
Energy Secretary Ed Miliband is expected to outline the measures in a speech on Tuesday, where he will signal a commitment to “double down not back down” on green power. His remarks are anticipated to include plans to expand renewables on publicly owned land, such as solar panels near railway lines, and to simplify the installation of electric vehicle chargers without driveways.
Miliband will also address critics in a “national growth debate,” warning that ignoring two fossil fuel crises in five years would be “completely irresponsible.” He cited recent petrol price increases and anticipated July energy bill rises linked to the US-Israeli conflict over Iran, following a previous spike triggered by Russia’s invasion of Ukraine three years ago.
For more on this story, see UK Government raises windfall tax on electricity generators to 55% unless they sign fixed-price contracts.
The Independent highlighted the mechanics of the current pricing system, noting that gas sets the wholesale price of electricity around 60% of the time — down from 90% at the start of the decade — despite supplying a shrinking share of actual power generation. This disproportionate influence occurs since of marginal pricing, where the most expensive energy source needed to meet demand determines the price for all generators.
Political reactions were swift. Shadow energy secretary Claire Coutinho accused Miliband of “piling on cost after cost” onto electricity bills, arguing that taxes and levies on top of wholesale prices undermine affordability. In contrast, Liberal Democrat spokesperson Pippa Heylings welcomed the plans but urged faster action, saying households should already be benefiting from the abundance of cheap renewable electricity.
Green Party energy spokesperson Carla Denyer expressed relief at the announcement but criticised the government for delays, stating it had nearly two years since the election to prevent the current crisis rather than merely respond to it. Plaid Cymru’s Llinos Medi echoed the sentiment, saying the government must go further as long as prices remain tied to volatile gas markets.
Reform UK and the SNP were contacted for comment, and officials noted that Northern Ireland operates under a separate energy market and is not directly affected by the proposed changes in Great Britain.
Will the fixed-price contracts be mandatory for renewable energy generators?
No, the contracts are voluntary. Generators who choose not to sign up will instead face the higher Electricity Generator Levy rate of 55% on excess profits when gas prices spike.
How soon could the changes to electricity pricing take effect?
The government believes the changes could be in place within about a year, following a consultation period, though no firm timeline has been set.
Why does gas still influence electricity prices despite the growth of renewables?
Because of the marginal pricing system, the most expensive source of energy — often gas — needed to meet demand sets the price for all generators, even when cheaper renewables are available.
