UK shifts older wind and solar farms to fixed-price deals to reduce price shocks

The government has confirmed plans to move older wind and solar farms which make up almost a third of Great Britain’s power market on to fixed-price contracts to help protect households and businesses from future gas market shocks.

Under the plans, first revealed by the Guardian, renewable energy projects that earn subsidies on top of the market price will be asked to sign up to contracts that pay a set price for electricity as part of the government’s plan to “delink the price of electricity from the price of gas”.

The voluntary shift would mark the government’s most radical attempt to weaken the impact of soaring wholesale gas prices on the UK’s electricity costs, which are some of the highest in any developed economy.

Officials confirmed the market intervention alongside plans to accelerate the rollout of clean energy projects and encourage the uptake of electric alternatives to fossil fuels as the “only route to energy security and bringing bills down for good”.

The measures were set out ahead of a speech on Tuesday by Ed Miliband, the energy secretary, in which he is expected to say that the lesson from the second fossil fuel shock in less than five years is to “double down, not back down, on our mission for clean energy”.

The Guardian reported last week that the so-called “legacy generators” will be offered the opportunity to sign up to the new contracts, which are similar to deals struck by low-carbon projects since 2017, or face higher windfall taxes on their profits.

Securing the bulk of the UK’s electricity from fixed-price contracts should mean electricity costs will fall and bill payers would be less exposed to sudden market price shocks.

The proposal was first put forward by analysts at the UK Energy Research Centre in April 2022 to guard against surging gas prices following Russia’s invasion of Ukraine. They said it could save between £4bn and £10bn a year if market prices remained high.

The UK has emerged as one of the countries most exposed to volatility in the fossil fuel markets because it generates about 30% of its electricity from gas plants, which set the price for the market overall.

This means higher market prices provide a windfall for renewable energy, biomass and nuclear reactors – unless they generate power based on a guaranteed fixed-price contract known in the industry as a contract for difference.