Households Could Save £200 on Energy Bills with New Plan to Break Gas and Electricity Price Link

UK households could reduce annual energy costs by £200 if the government decouples electricity pricing from natural gas costs, according to a proposal from the thinktank Compass reported by The Guardian on June 10, 2026. The plan calls for a shift away from the current marginal pricing system to lower bills for consumers.

The proposal targets the structural link between gas and electricity prices that often keeps power costs high even when renewable energy generation is peaking. Under the current framework, the most expensive source of electricity needed to meet demand—usually gas—sets the price for all electricity sold on the wholesale market.

Why are electricity prices linked to gas?

The UK uses a “marginal pricing” model. This means the market price for electricity is determined by the last and most expensive power plant required to meet total demand. Because gas-fired power stations often fill this final gap, the price of natural gas dictates the cost of electricity, regardless of whether the energy was actually produced by wind, solar, or nuclear sources.

This mechanism ensures that generators have an incentive to enter the market, but it creates a volatility loop. When global gas prices spike, electricity prices follow, even if the UK is producing record amounts of cheap wind power. According to the Compass thinktank, this system prevents consumers from seeing the direct financial benefit of the UK’s transition to renewable energy.

How would the proposed plan save households £200?

The plan proposes replacing marginal pricing with a system based on the actual cost of producing the energy. Instead of the most expensive unit setting the price, the cost would reflect the weighted average of all generation sources.

Because wind and solar power have near-zero marginal costs once the infrastructure is built, a cost-reflective model would naturally lower the wholesale price of electricity. The Compass report suggests this shift would lead to an average saving of £200 per household annually by removing the “gas premium” from electricity bills.

The thinktank argues that the current system effectively subsidizes expensive fossil fuel generation by forcing renewable energy producers to sell their power at the higher gas-linked price. Breaking this link would redirect those savings from energy companies toward the end consumer.

What is the difference between marginal and cost-reflective pricing?

The distinction between the two models centers on how the market values “the next unit” of energy versus the “average unit.”

• Marginal Pricing: The price is set by the most expensive generator (typically gas). If the grid needs 100 units and the 100th unit costs 10p, every unit is sold at 10p.
• Cost-Reflective Pricing: The price is based on the average cost of all 100 units. If 80 units are cheap wind (1p) and 20 are expensive gas (10p), the average price drops significantly.

This contrast is why the Compass proposal focuses on the “link” as the primary driver of high costs. It’s not a lack of cheap energy, but a pricing rule that ignores it.

What are the potential risks of breaking the link?

Critics of decoupling often argue that marginal pricing is necessary to attract investment in new power plants. They claim that if generators can’t earn a premium during peak demand, they won’t build the backup capacity needed for when the wind doesn’t blow.

However, the Compass proposal suggests that alternative investment mechanisms, such as capacity markets or government-backed contracts, can ensure grid stability without relying on high consumer prices. The thinktank contends that the current system’s instability is a greater risk to the economy than the transition to a new pricing model.

What happens next for UK energy policy?

Implementing these changes would require significant regulatory intervention from Ofgem and the Department for Energy Security and Net Zero. The government would need to rewrite the rules of the wholesale electricity market to move away from the marginal price setting.

The proposal comes at a time when the UK is attempting to accelerate its “Net Zero” targets. By linking lower bills directly to renewable adoption, the thinktank suggests the government could increase public support for the green transition, as consumers would see immediate financial rewards in their monthly statements.