Question to the Department for Energy Security & Net Zero:

To ask the Secretary of State for Energy Security and Net Zero, whether he plans to take steps to decouple electricity prices from the wholesale gas price.

The electricity market in GB operates on the principle of marginal pricing, whereby the price of electricity is set by the last technology needed to meet overall demand. In the current market, gas prices often set the wholesale electricity price because it is typically the last source of supply to meet demand.

Decarbonising the power system will increase energy security by reducing dependence on imported oil and gas, which will in turn reduce the exposure of consumer bills to volatile international prices. The ever-increasing participation of renewables in the wholesale market means that over time, cheaper electricity produced by renewable technologies will determine the price more often and gas will play a much more limited role in setting the wholesale market price.

Increasing the number of renewables on Contracts for Difference (CfDs) has already made a tangible difference. When wholesale electricity prices spiked in the winter of 2022/23, the CfD delivered the equivalent of an £18 saving on a typical annual household bill.

Expanding the CfD scheme to enable more renewables in the wholesale market will help to rapidly decouple electricity from gas prices without the need for more complex arrangements.

The Review of Electricity Market Arrangements (REMA) programme is considering what further steps can be taken to shield consumers from the impacts of potential price spikes.

The second REMA consultation sought views on some specific proposals, including retaining marginal pricing across the wholesale market alongside futureproofing the CfD scheme as the best tool to decouple gas and electricity prices.