Decisive action to break influence of gas on electricity prices
Summary
DESNZ has announced a Wholesale Contract for Difference (WCfD) that would let existing Renewables Obligation and merchant generators swap forward wholesale revenue for a fixed government strike price, while ROC income continues unchanged. The Electricity Generator Levy rises from 45 to 55 percent, removing the legislated taper to zero. Consultation on WCfD design comes later in 2026, allocation in 2027. Reformed National Pricing is confirmed as the post-REMA track; zonal is off the table.
Why it matters
WCfD touches only the third of RO generator revenue that comes from wholesale. ROC income, roughly two thirds of the stack for older offshore and the portion consumers pay through supplier charges, is untouched. An offshore wind farm on 1.9 ROCs already earns around £200/MWh today on capex largely paid off. Voluntary participation means only generators who net out ahead will sign, so on average the scheme cannot reduce generator revenue. The EGL rise to 55 percent, announced in the same package with its legislated 2028 sunset removed, is the stick that makes the WCfD a rational carrot: hand back 55 percent of supramarginal wholesale revenue indefinitely, or swap into a fixed strike. The architecture is designed to produce uptake at a lower strike than DESNZ could otherwise negotiate. Strike level, contract length, and negative-price rules remain unpublished; those are the questions the consultation will turn on.
Key facts
- •WCfD offered to existing RO and merchant low-carbon generators not already on a CfD
- •Covers approximately 30 percent of GB power supply currently exposed to wholesale prices
- •ROC income continues unchanged alongside the WCfD strike; only wholesale revenue is converted
- •ROC reference price currently around £67-70 per certificate
- •Onshore wind typically receives 1 ROC per MWh; offshore wind on older bands up to 1.9
- •Allocation process planned for 2027, consultation on design later in 2026
- •EGL rate raised from 45 to 55 percent, reversing the legislated taper to zero by 2028
- •Justification given: Middle East gas price spike
- •Government states gas sets price ~60 percent of the time today, projected to fall to ~50 by 2030
- •Reformed National Pricing Delivery Plan confirms non-zonal direction post-REMA
- •Claims up to £20bn benefits 2030-2050 from the delivery plan (not audited)
- •Package bundled with £100m Social Housing Fund top-up (up to 57,000 solar installs)
- •Boiler Upgrade Scheme grant raised to £9,000 for oil- and LPG-heated homes
- •Transitional Energy Certificates further detail ahead of primary legislation
- •Up to 10 GW of public-land solar potential flagged across government estate
Areas affected
Related programmes
Memo
# WCfD and the EGL rise: what the package actually does
## The package
DESNZ has announced three linked measures. The Wholesale Contract for Difference (WCfD) will offer existing Renewables Obligation and merchant generators a fixed strike price on their wholesale revenue, with ROC accreditation continuing unchanged; consultation in H2 2026, allocation in 2027. The Electricity Generator Levy rises from 45 to 55 percent with immediate effect, and the legislated taper to zero by 2028 is removed. The Reformed National Pricing Delivery Plan confirms zonal pricing is rejected.
## The arithmetic of what WCfD covers
An RO generator earns ROCs plus the wholesale price of the electricity generated. At a current ROC reference price around £67-70 and wholesale in the £60-80 range, onshore wind on 1 ROC earns roughly £130-150/MWh. Offshore on 1.9 ROCs earns roughly £195-215/MWh. Wholesale is under half the revenue stack and, for older offshore on higher ROC bands, around a third. WCfD addresses that third. The ROC top-up, which consumers already pay through supplier charges, is not touched. As such, a policy framed as protecting consumers from electricity prices does not touch the part of the generator revenue stack that consumers pay directly.
The wholesale share is also the share DESNZ's own scenarios expect to fall. Renewable capture prices diverge from the time-weighted average as more renewables come on the system. Spanish solar cleared an average €1.30/MWh in February 2026. A fixed strike on that share locks in a value the build-out was set to erode.
## Voluntary participation tilts the outcome
Uptake is voluntary, so generators only sign if the WCfD strike is worth more to them than their expected merchant revenue net of the 55 percent EGL. Certainty of a fixed price carries value in itself, so a strike slightly below expected net merchant capture can still clear; the exact balance depends on generator cost of capital, PPA position, and remaining asset life. What follows is that the strike can be lower than DESNZ would need without the EGL alongside it, but not by a clean arithmetic margin. The size of the effect is a question for the consultation, not a claim to settle now.
## The EGL as the stick
The original EGL was a temporary windfall tax at 45 percent above £75/MWh, legislated to taper to zero by 2028. It now stands at 55 percent with no taper and no review mechanism. A tax justified by one extraordinary event has been used to escalate at the next. The 45 percent rate is now a floor.
The two announcements do not make sense separately. WCfD on its own is a voluntary offer generators might decline. Raising the EGL to 55 percent changes the alternative: stay on the wholesale market and hand back more than half of any supramarginal revenue with no defined endpoint, or swap into a fixed strike and escape the levy on covered volume. The greater the levy threat, the lower the strike DESNZ can set and still attract uptake. As such the levy does two jobs at once: raising revenue now and softening the strike-setting negotiation later.
Generators price the EGL into forward PPA premia. Industrial and commercial buyers on 5-10 year contracts absorb the 10-point rise through the forward curve. A levy designed as generator taxation in practice taxes long-dated demand.
## Questions the consultation will turn on
The consultation has not been published. Five questions will determine whether the package delivers on its framing.
Contract length. If WCfD replaces wholesale revenues on existing RO contracts, the term should match the RO residual life, roughly 5-10 years. Industry briefing points to 15-20 years. Anything longer than residual RO life is an extension of support on assets whose original horizon was already generous.
Strike-setting mechanism. A competitive auction produces strikes that clear. An administered offer produces a negotiation in which the government raises the strike until enough generators sign. The voluntary-offer language in the press release points to the latter.
Negative-price rules. Original CfDs paid the strike regardless of wholesale, removing the incentive to curtail at oversupply. Whether WCfD inherits the reformed CfD rules determines whether it worsens the duck curve and thins storage and demand-response arbitrage.
Stackability with AR7. Can an AR7 winner later convert to a WCfD if strike prices diverge? If not, AR7 bidders price the lock-out as an option cost.
Interaction with ROC buyout. If buyout drifts up, converting to WCfD could reduce asset-level revenue. Generator uptake turns on this interaction.
## Who wins and who loses
Existing RO offshore wind gains most: largest absolute wholesale exposure per MWh, most capex already paid off. A strike near current wholesale converts a declining stream into a fixed one. Existing RO onshore wind gains less: smaller ROC multiplier, smaller wholesale exposure, sited where capture prices hold up better. AGR nuclear plausibly gains: a fixed strike removes the penalty for running through negative-price hours, easing economics in the final years of life. Merchant renewables gain or lose depending on where their existing PPA sits relative to the strike. Storage, interconnectors, and demand response lose: if covered renewables no longer curtail at negative prices, volatility thins and arbitrage margins compress. Consumers gain downside protection against gas spikes on covered volume and pay the difference whenever wholesale would otherwise settle below the strike; the net outcome is set by the strike, which has not been published.
## REMA
Zonal is rejected. The locational signal problem migrates to network charging via Connections Reform and the CAR Review, so anyone holding a locational-pricing thesis should reprice it as a TNUoS and BSUoS exposure. The deeper REMA question, whether GB retains a meaningful wholesale price signal as the administered share of generation grows, is answered implicitly: another third of supply is heading toward administered strike. If uptake is high, the share of GB power priced by administrative decision moves from roughly 40 percent to roughly 70 percent.
## Position
The EGL rise is presented as a temporary response to gas prices. It removes a legislated sunset, raises the rate 10 points, and provides no review mechanism. A windfall tax with no sunset is not a windfall tax. The incidence falls on long-dated power buyers through forward PPA premia, not on generator rents.
The WCfD is the consequential move. The framing is consumer protection, but the mechanism fixes the third of generator revenue that was falling anyway, leaves the two thirds consumers pay via ROCs untouched, and uses a voluntary structure in which generator uptake depends on the strike being worth more than expected merchant capture net of the EGL. The EGL rise makes the alternative to signing worse, which is how DESNZ will get uptake at a strike it can afford to offer.
The first number to check in the consultation is contract length. Anything longer than residual RO life extends support on assets whose original horizon was already generous, and should be called extension.
Source text
Families across the country will be better protected from energy crises, as government moves to break link between gas and electricity prices. New plans include long‑term fixed‑price contracts for renewables, protecting families when gas prices spike. Immediate action to tax excess profits through the Electricity Generator Levy by raising the rate from 45% to 55%, ensuring an increased proportion of the extraordinary revenue generated when the gas price spikes is available to government to support businesses and households with the cost-of-living. Comes as government doubles down on drive for clean, homegrown power with raft of measures to unlock public land, speed up planning and cut bills for families. Plans to better protect families and businesses by ending the unfair way international gas prices push up electricity prices across Great Britain take a major step forward today. Instability in the Middle East has shown that Britain’s reliance on international fossil fuel markets leaves families and businesses exposed to volatile gas prices, driving the cost-of-living crisis even though much of the country’s electricity comes from cheaper renewables and nuclear. When wars, geopolitical tensions or supply shocks abroad push up global gas prices, electricity bills rise with them, exposing families to crises they have no control over. Over time, this problem is easing as new clean energy projects are built on fixed price contracts that protect consumers from gas price volatility. But a significant share of renewable generation – about 30% of Britain’s power supply - is still exposed to wholesale prices set by gas, leaving families vulnerable when international prices rise. Therefore, to shield families from future crises, today the government is setting out new measures to ‘break the link’, reducing the impact that volatile gas prices have on the price of electricity. This will be done by: Voluntary long term fixed contracts: offered to existing low-carbon generators not on fixed‑price contracts – covering around a third of Britain’s power supply. This will help protect families and businesses from higher bills when gas prices spike, with contracts offered only where they deliver clear value for money for consumers. An updated Electricity Generators Levy: immediate action to tax excess profits through the Electricity Generator Levy by raising the rate from 45% to 55%, ensuring an increased proportion of the extraordinary revenues generated when the gas price spikes is available to government to support businesses and households with the impacts of the conflict in the Middle East on the cost of living. Measures announced today will further reduce the share of electricity exposed to gas price shocks and provide generators the economic incentive to move on to fixed contracts not linked to volatile gas. The government is monitoring the impact of the current crisis on energy bills and will be ready to step in to provide targeted support where necessary. Britain has already moved from gas setting the price of electricity around 90% of the time in the early 2020s, to around 60% today. Through the government’s clean energy mission, it is estimated gas will set the wholesale price around half of the time by 2030. Prime Minister Keir Starmer said: We need to get off the fossil fuel rollercoaster – this will make energy bills more stable and take the pressure off family budgets. When global gas prices spike, people here shouldn’t be picking up the tab. Our focus is simple: easing pressure on household budgets now, while building a homegrown energy system that protects families from global instability in the years ahead. Energy Secretary Ed Miliband said: As we face the second fossil fuel shock in less than five years, the lesson for our country is clear: The era of fossil fuel security is over, and the era of clean energy security must come of age. That’s why we’re doubling down on clean power, to give our country energy security and bring down bills for good. Chancellor Rachel Reeves said: Hardworking British families and businesses should not bear the brunt of global gas price shocks while electricity generators are making exceptional profits. Alongside moving generators onto the competitive pricing assured through wholesale Contracts for Difference, increasing the EGL to 55% will help to break the link between high gas prices and high electricity prices - offering households and businesses stronger protection against future energy shocks. Speaking today at the Good Growth Foundation, the Energy Secretary set out further measures to help cut bills for families and deliver more clean, homegrown power: Bigger grants for households on heating oil and LPG The crisis in the Middle East has impacted those on heating oil and LPG the hardest. The government is today announcing an increase to the Boiler Upgrade Scheme (BUS) grant for properties heated by oil and LPG, taking the total grant to £9,000. This will help those households and small businesses in England and Wales most impacted by rising energy prices, particularly in rural areas, to electrify their heating and provide greater certainty over energy bills. Further details on Transitional Energy Certificates Today in advance of legislation, we are publishing further details on Transitional Energy Certificates to provide greater certainty and clarity for industry looking to invest in already-explored areas near existing licensed fields, supporting a fair and managed transition. Faster upgrades for social housing The government is already investing £1.2 billion to upgrade 100,000 social homes over the next two years. To accelerate further, the government is today providing an additional £100 million of funding for the Social Housing Fund, subject to final approvals, to support the delivery of up to a total of 57,000 solar installations for households this financial year. Through the Social Housing Fund and social housing regulations in the Warm Homes Plan, this will help households cut bills by hundreds of pounds and support up to a million homes reach EPC C. Solar panels for schools and colleges Building on the success of Great British Energy’s solar scheme, the government is backing the company to extend support for more rooftop solar installations on a further 100 schools and colleges this year. Up to £40 million of government investment, subject to final approvals, Great British Energy will deliver new rooftop solar and renewable schemes - helping the public sector cut energy costs and reinvest savings. Public land Driving forward plans to massively expand renewables across the Public Estate – including using brownfield land, industrial sites and railway sites to host solar panels and wind turbines. This could unlock up to 10GW of capacity, even using only a fraction of government land, powering the equivalent of around 5 million homes. Planning and land rules Streamlining outdated rules to unblock the grid and speed up clean, homegrown power, through the biggest overhaul of planning, land access and grid connection processes since the start of the government’s clean energy mission — cutting delays for essential grid upgrades and renewables, and exploring new routes for developers to build and connect their projects faster. EVs, heat pumps and solar Plans to make it easier for people to switch to cheaper electric transport and heating, by making EV chargers, solar panels and heat pumps easier to install for renters, flat-dwellers and households without a driveway. The government is exploring ways to ensure that low-income households can benefit from plug-in solar through our Warm Homes Plan this year, and have earmarked up to £25 million with a view to piloting support for plug-in panels in partnership with local authorities and mayors: our vision is a street by street approach where tens of thousands of low-cost solar panels are delivered to those most in need. Reformed National Pricing Households and businesses will benefit from a cheaper, more efficient energy system through a new Reformed National Pricing Delivery Plan. The delivery plan shows how smarter planning and faster delivery of electricity infrastructure could unlock up to £20 billion in benefits between 2030 and 2050. Notes to editors: Fixed contracts, known as ‘Wholesale Contracts for Difference’ will be introduced voluntary later this year, with an intention to run an allocation process in 2027. Explainer : Voluntary long-term fixed contracts A Contract for Difference (CfD) is a long‑term contract between the Government and an electricity generator that guarantees a stable, fixed price for the electricity they produce. A Wholesale Contract for Difference (WCfD) would offer existing eligible generators, who aren’t already contracted under a CfD, the option to accept a fixed price for the electricity they generate. This would mean that both they and consumers are no longer exposed to volatile gas-linked electricity prices. A WCfD would see eligible generators give up their current forward wholesale revenues in exchange for a fixed power price achieved via a CfD. Under this proposal it is envisaged that generators accredited under the Renewables Obligation (RO) would continue to receive support via the RO in the way they do currently – with only their wholesale revenues being exchanged for a fixed price CfD. The WCfD will be a voluntary offer to eligible electricity generators, and will be subject to consultation in due course. Government will only offer contracts to electricity generators where it represents clear value for money for consumers. Further details will be set out in due course, with plans to consult later this year.