- Instability in the Middle East has shown that Britain's
reliance on international fossil fuel markets leaves families
and businesses exposed to volatile gas prices, driving the cost
of living crisis, even though much of the country's electricity
comes from cheaper renewables and nuclear power. In the UK,
over 50 per cent of electricity is generated from renewables.
However, electricity prices are still
largely set by the price of
gas.
- To address this, the Government will break the link between
electricity and gas prices by moving older generators onto new
fixed-price contracts. Alongside this, the Government is
increasing the rate of the Electricity Generator Levy (EGL) to
ensure a proportion of any exceptional revenue that generators
receive because of spikes in gas prices, is available to the
Government to support businesses and households with their cost
of living.
What does the Bill
do?
- In April 2026, the Government announced action to uncouple
electricity prices from gas prices. The UK offers new
low-carbon generators a long-term contract that guarantees a
stable, fixed price for the electricity they produce (Contracts
for Difference). The Government will encourage existing
eligible generators to accept a fixed price for the electricity
they generate (wholesale Contracts for Difference). This will
be a voluntary offer and is subject to consultation in due
course.
- To support the aim to drive eligible generators onto
fixed-price contracts, the Government has announced an increase
in the Electricity Generator Levy rate from 45 per cent to 55
per cent from 1 July 2026. This Bill will deliver that change.
- This increase will encourage participation at a competitive
price in wholesale Contracts for Difference and ensure that a
proportion of any exceptional revenue that generators may
receive because of the conflict in the Middle East is available
to the Government to support businesses and households with
their cost of living.
- The Government also announced it will extend the
Electricity Generator Levy past its scheduled conclusion in
2028. The Government will set out plans and legislate for this
extension at a later date.
Territorial extent and
application
- The Bill will extend and apply to the whole of the UK.
Key facts
-
The Electricity Generator Levy was introduced from
2023 to tax the extraordinary returns realised by
some renewable electricity generators who were achieving
prices set by gas-fired electricity generation without facing
commensurate increased costs.
-
The increase
to the
rate of
the Electricity
Generator Levy
was announced alongside a wider
package of market support and reform. Most prominent
was the introduction of a wholesale Contract for Difference,
which would offer existing eligible generators, who are not
already contracted under a long-term fixed contract, the
option to accept a fixed price for the electricity they
generate. Other measures included larger grants for
households on heating oil and liquefied petroleum gas to
install heat pumps, as well as reforms to the planning and
connection processes.
-
HMRC will
publish guidance
to support
the change. Receipts for
accounting periods that straddle 1 July 2026 will be
time-apportioned so that the higher rate applies only to
revenues arising after that date.
- The End Fuel Poverty Coalition has said “For too long,
households and businesses have been paying electricity bills
linked to and inflated by a gas market they have no control
over. This is a structural failure in how our energy system is
priced and it has cost households dearly. Raising the levy on
generators that pocket windfall profits when bills soar is the
right thing to do.
