The UK government plans to offer voluntary difference contracts to all existing renewable energy producers without a fixed price contract later in 2026.
Image: derek dye, Wikimedia Commons, CC BY-SA 2.0
UK solar power stations without fixed price contracts will be offered a new voluntary long-term agreement as part of a wider government push to try to reduce energy bills for consumers. The new ‘Wholesale Contracts for Difference’ regime will apply to all renewable energy technologies and will be introduced as a voluntary offering later in 2026, with an allocation process planned for 2027.
The UK government has also announced an increase in the tax rate applied through the Electricity Generator Levy, which is paid on wholesale electricity sold at GBP75 ($100)/MWh or more.
The levy was first introduced in 2023 and charges a 45% levy on generation above the threshold, known as exceptional receipts. The rate will be increased to 55%, a move the UK government says will ensure it can support businesses and households “with the impact of the conflict in the Middle East on the cost of living.”
The role of gas in determining electricity prices has come under increasing political fire in Britain as consumers struggle with high energy bills. The wholesale electricity market in Britain operates on a pay-as-clear model, with all producers paying the price of the highest clearing bid at the auction for the electricity they supply. This can result in significantly higher revenues at times when gas-fired generation determines the market price.
This approach has been criticized by some as artificially inflating the price of electricity for consumers by paying renewable energy producers high prices at times when gas sets the wholesale price, despite the relatively low marginal cost of renewable energy generation. Others have argued that the potential benefit encourages investment in renewable energy sources and battery energy storage systems.
UK energy shares fell ahead of the government’s announcement as markets reacted to possible interventions. Prior to the announcement, senior British politicians had mooted a plan to break the link between gas and wholesale electricity prices.
Although full details of the voluntary fixed-price contracts have not yet been released, the UK government estimates that a significant proportion of renewable energy generation – around 30% of the UK’s electricity supply – is still exposed to wholesale prices determined by gas.
In a press release accompanying the announcement, Prime Minister Keir Starmer said Britain must ‘get off the fossil fuel rollercoaster’.
“This will make energy bills more stable and take the pressure off household budgets,” Starmer said.
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