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UK Considers Decoupling Power From Gas Prices In Biggest Reform In Decades

The UK government is considering ending the pricing system of British power prices, which are now linked with natural gas prices, in a bid to reduce energy bills for millions of households, The Times reported on Monday, quoting government sources.

The market reform, which would be the major energy market overhaul in decades, will aim to cut the connection between gas prices and power prices, as the UK is expected to increase its offshore wind and nuclear power source in the electricity generation mix in the coming decades.

The UK government is currently drafting the reform, which is expected to be introduced as legislation this autumn. The Department for Business, Energy & Industrial Strategy plans to unveil proposals for reforms “in the coming weeks,” The Times reports.

By reforming the energy market, the government looks to decouple power prices from natural gas prices, whose surge in the past months has led to a major increase in energy bills and a jump in the so-called energy price cap, which protects households from excessively high bills by capping the price that providers can pass on to them.

The government argues that the reform makes sense because a growing amount of the UK’s electricity comes from renewable energy sources.

Yet, the reform is “fiendishly complicated,” government sources told The Times.

In April, the Energy Price Cap was raised by more than 50 percent, doubling the number of fuel-stressed households in the UK overnight. But the UK hasn’t seen the worst of its cost-of-living crisis as energy bills could soar by another 42% in less than six months’ time when the energy regulator will raise the so-called energy cap again. Soaring energy prices are hitting UK households and energy providers in a market that has realized that the cost-of-living crisis is not going away soon and will get even worse come next winter. 

By Tsvetana Paraskova for Oilprice.com

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