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Market Intelligence & Pricing

Consciously Uncoupling: Why Your "Renewable" Electricity Is Still Priced in Gas

Johnny Arthur ·

Electricity pylon standing in a golden wheat field under a bright summer blue sky.

Last April, for half an hour on a Tuesday afternoon, gas supplied 1.2% of Britain’s electricity. The price you paid for power in that half hour was still set by gas.

That is not a glitch. It is the market working exactly as designed — and the design is now the single most expensive line in British energy policy. Britain doesn’t have an expensive electricity problem. It has a pricing mechanism problem.

Every generator gets paid the price of the most expensive one

The wholesale electricity market runs on marginal pricing. In every half-hour settlement period, generators bid in, cheapest first — wind and solar at near-zero running cost, then nuclear, then gas. The system takes what it needs, and every generator in the stack gets paid the price of the last, most expensive plant required to balance the system.

For most of the last thirty years, that last plant was gas. So gas set the price for everything — including the wind farm whose fuel arrived free off the North Sea.

When gas was cheap, nobody minded. The mechanism was invisible. Then Russia invaded Ukraine, gas went vertical, and every business in Britain discovered they’d been paying gas prices for electricity that increasingly wasn’t made from gas. The conflict with Iran this year re-ran the same experiment and produced the same result: fossil markets spiked, and British power prices spiked with them — in a spring when wind was setting generation records.

The numbers underneath are stark. In 2025, hours where gas supplied less than 20% of the grid averaged around £60/MWh wholesale. Hours where gas supplied more than half averaged around £130/MWh. Same wires. Same wind. More than double the price, purely because of which plant happened to be setting it.

Three things have converged.

Gas no longer runs the system — it just prices it. Gas set the wholesale price in more than 90% of hours in 2021. Today it’s around 60% and falling. In March this year wind supplied a record 42% of British generation; in April, gas fell to 19% — its lowest monthly share in over a decade. Renewables delivered a record 44% of UK electricity across 2025. The physical system has transformed. The pricing system hasn’t.

The economic case now has a number on it: £85 billion. Make UK’s report with Ecotricity estimates that if industrial electricity prices aren’t brought down, a 13% contraction in manufacturing activity would cost the economy £85bn a year, roughly £50bn of it through supply chains. Nine in ten manufacturers say bills have risen since 2022; over half now rank energy as their biggest challenge. Seven in ten are passing the cost straight to their customers — which is to say, to you.

The politics has moved. Government has committed to “break the link” between gas and electricity prices, and Make UK’s asks — shift policy levies off electricity bills into general taxation, deliver the industrial competitiveness scheme this year, accelerate structural market reform — are no longer fringe positions. Ecotricity’s Dale Vince has argued for years that breaking the link during the 2023 crisis alone would have saved UK businesses on the order of £30bn. That argument used to be a campaign. It’s now a consultation response from half the industrial base.

So why hasn’t it happened already?

Because the link isn’t a switch. It’s load-bearing. Three governments have circled this problem, and the structural blockers are always the same four.

The marginal price is the market’s dispatch signal. It isn’t decoration — it’s the mechanism that tells the most expensive plant whether to fire up. Remove it carelessly and you don’t get cheap power; you get a system that doesn’t know how to balance itself at 5.30pm on a still January evening. Any replacement has to do that job first and cut bills second.

Most renewable output is still contractually tethered to the wholesale price. Only around 15% of British generation currently sits on Contracts for Difference — the scheme that genuinely fixes a renewable generator’s price independent of gas. The older Renewables Obligation fleet and merchant plants still earn the gas-set wholesale price. On current build-out, CfD coverage reaches roughly 36% by 2030. Better. Still a minority.

The hedging books are written in gas. Suppliers hedge your fixed contract by trading power and gas together, because the two have moved together for decades. Break the correlation overnight and every hedge book in the retail market breaks with it. Compliance teams default to “no.” Every time.

Reform reviews move at the speed of consultation. The wholesale market review spent years litigating zonal pricing before landing anywhere. Meanwhile the government’s actual near-term lever — raising the windfall levy on older renewable and nuclear plants to 55% from this month and recycling the money into bills — is a patch on the symptom, not surgery on the mechanism. It claws back the gas-price windfall rather than stopping the windfall arising.

The brutal irony? The cheaper renewables make electricity in physics, the more absurd the pricing mechanism looks on paper — and the more revenue there is defending it. Every generator earning gas prices for non-gas power has a quiet interest in a long, careful, thorough, unhurried reform process.

What a UK business should actually do while the divorce lawyers argue

Uncoupling is coming, but on a 2030s timetable. Your next contract renewal is not on a 2030s timetable. Five moves:

  1. Price your renewal against the gas curve, not the calendar. Wholesale power still tracks gas. Renew when gas is soft, not when your contract happens to end.
  2. Treat “100% renewable tariff” as an accounting statement, not a hedge. REGO-backed tariffs are priced off the same gas-linked wholesale market. They change your carbon report, not your exposure.
  3. Ask what fraction of your supply is CfD-backed. Contracts underpinned by fixed-price generation are the only supply genuinely de-linked from gas today.
  4. Look hard at a corporate PPA if your consumption justifies it. A fixed-price power purchase agreement is a private version of the decoupling the government is still consulting on.
  5. Put generation on your own roof. On-site solar is the one form of uncoupling no market reform can delay, dilute or tax. The kit has never been cheaper relative to the grid price it displaces.

The bigger question: who pockets the difference?

Here’s the thought experiment worth sitting with. When the link finally breaks — and it will — the gap between the cost of generating renewable power and the gas-set price it currently earns doesn’t vanish. It goes somewhere.

It can go to generators, as permanently fatter margins. It can go to the Treasury, as levy revenue. Or it can go to the people the system exists to serve — the manufacturers warning of an £85bn hit, the care homes, the hotels, the businesses currently subsidising a pricing convention designed in 1990 for a fuel mix that no longer exists.

Market design is not weather. It is a political choice, made once at privatisation and renewed every year by inertia. Britain chose marginal pricing when gas was the system. Gas is now 19% of the system and shrinking. Keeping the pricing mechanism of the fuel you’re abandoning is not caution. It’s a transfer of wealth with a technical name.

The question for business owners right now

Every fixed contract signed this year quietly answers a question most FDs never ask: how many of the hours I’m buying will be priced by a fuel my supplier barely uses? At today’s numbers, the answer is roughly six in ten — and you’re paying the £130 hours, not the £60 ones.

If you don’t know which side of that split your renewal sits on, someone in the chain does. It just isn’t you.

Britain has built a renewable power system and bolted it to a fossil fuel price.

The uncoupling is coming. The only open question is who pockets the difference.

Make sure some of it is you.

Telnergy is an independent commercial energy consultancy. We don’t sell tariffs — we tender them. If your next renewal is inside 12 months, call 01202 028888 or email hello@telnergy.com.

Telnergy Limited is an independent commercial energy consultancy established in 2002, based in Christchurch, Dorset. Ofgem registered TPI · ADR Ref E3561 · CRN 04576876.