UK broadens fixed-price contracts for low-carbon generation

The Department for Energy Security and Net Zero has set out a new package intended to reduce the influence of gas on electricity prices, combining voluntary long-term fixed-price contracts for existing low-carbon generators with wider market reform. The contracts would apply to generation that is not already on fixed-price arrangements, bringing older low-carbon assets into a more stable revenue framework while reducing exposure to short-term gas-driven price volatility.

The government said the new contracts could cover around a third of Britain’s power supply. Alongside that, it said the Electricity Generator Levy will rise from 45% to 55%, changing the economics for generators that remain more exposed to wholesale market peaks. The package is designed to move a larger share of low-carbon output onto contractual arrangements with clearer prices while capturing more exceptional revenues where generators continue to benefit from elevated market conditions.

The announcement was published alongside the Reformed National Pricing delivery plan and a consultation on siting and investment levers. Those documents address issues that have become increasingly difficult to separate from wholesale pricing: constraint costs, queue management, locational investment signals, and the inefficient use of generation in parts of the network where power cannot be moved or absorbed economically. Market reform is therefore being paired with a more explicit programme of system reform.

Britain’s electricity prices have been shaped by several overlapping pressures in recent years. Gas still sets the marginal price in many periods, while network congestion, balancing actions, and the growing mismatch between where electricity is produced and where it is consumed continue to add cost. Bringing older low-carbon generation onto long-term fixed-price structures would not remove those pressures, but it would change the composition of supply exposed to fuel-linked price swings and reduce one source of volatility in the market.

The policy direction also reflects a broader shift in how reform is being framed. The debate is moving beyond the headline question of wholesale pricing design and toward a wider set of choices about infrastructure planning, connection queues, settlement, and investment location. The Reformed National Pricing work suggests ministers want those questions handled as part of one programme rather than as separate interventions that reach the market at different speeds.

For generators, suppliers, and large electricity users, the next phase will turn on detail. Contract structure, strike levels, participation terms, and take-up will determine how much generation actually moves into the new framework. At the same time, locational reforms and queue changes will affect where projects are built, how network value is assessed, and how quickly constraint costs can be brought down in congested areas of the system.

The wider context is a grid carrying more renewable generation while still operating through a market structure built around older assumptions on plant location and dispatch. Power is being added more quickly than some parts of the network can integrate it, and price formation is still heavily influenced by fuel costs even as the generation mix changes. The latest package places revenue reform and network reform on the same track, which is where the pressure has been building for some time.

Further details are available in the government’s published Reformed National Pricing delivery plan and the consultation on siting and investment levers.