Wind turbines can generate 40% of Britain's electricity at virtually no fuel cost. So why is UK electricity so expensive - why are bills so high if wind is free? We explain in our guide to why UK electricity bills follow gas prices.
Regulators deliberately designed the wholesale electricity market this way. The Middle East conflict has demonstrated the cost - just as Russia's invasion did in 2022. Ed Miliband is pushing Labour towards decoupling electricity from gas pricing, but would it reduce your bill?
How the merit order works
How does the wholesale electricity market work in the UK? It operates in half-hour settlement periods. Every power station submits its short-run marginal cost (SRMC) - the minimum price it will accept. The National Energy System Operator dispatches them cheapest first until generation meets demand.
The fundamental rule: every generator that operates receives the same price, determined by the highest accepted bid - almost always gas. This is the merit order, a marginal pricing system that ties UK electricity to gas.
Wind farms bid near zero because they have no fuel expenditure. Gas plants bid significantly higher because they must purchase gas on world commodity markets. When gas is the last source required, its bid determines the clearing price for all generators - including wind.
The Merit Order Stack
Running cost by generation technology, in £/MWh. Every generator earns the clearing price, set by the last one needed.
Why this costs you money
When gas prices escalate - as during the Middle East crisis - the clearing price also rises. Wind farms accumulate a windfall while consumers absorb the higher price.
Households contributed billions to develop offshore wind. Where does wind energy money go? The market directs that surplus into generator revenues rather than consumer savings. Renewable energy is not reducing household bills as substantially as expected.
Renewables are already helping
Renewables do not require market reform to reduce electricity prices. Additional wind and solar displaces gas further up the generation queue - sometimes removing it entirely. The ECIU estimates renewables reduced wholesale prices by approximately one third in 2025.
Spain demonstrates the trajectory. Gas determined the Spanish electricity price 67% of the time in 2023; by 2025, just 14%.
Hours Gas Sets the Electricity Price: Spain vs UK
Proportion of half-hour periods where gas determines the wholesale price.
Source: Ember / Modo Energy; LCP Delta / ECIU.
The pattern holds: additional clean power generation means gas sets the wholesale price less frequently. If the UK achieves its 2030 renewable targets, gas would rarely need to operate. That would protect consumer bills from price shocks.
What reform options exist
Several proposals for restructuring the UK electricity market are currently under consideration.
Pay-as-bid
Each generator receives what it bid, not the clearing price. This appears fairer - but wind farms would raise bids to match gas regardless, merely transferring the windfall.
Split markets
A separate market for renewable energy projects, with gas paid through a different route. The risk: clean generators could still bid up to gas-level prices.
Single buyer model
NESO buys all power on fixed contracts for difference (CfD). Removes wind farm windfall profits at source but needs new laws and years to deliver.
Gas strategic reserve
Remove gas plants from the open market. NESO activates them at a fixed cost when required. The wholesale price follows the highest clean source.
Reform Options: Speed vs Depth of Change
Where each proposal sits on delivery time versus depth of market change.
The Department for Energy Security's REMA consultation chose reformed national pricing over zonal pricing in July 2025. It opted for incremental adjustments: improved grid planning, reformed network charges, and additional contracts for difference. None eliminate the gas-electricity price link - the question Labour now wants to address.
No reform can make gas cheaper - the UK purchases on international commodity markets. Market reforms can prevent gas price spikes from inflating renewable revenues. That means fewer windfall profits and more predictable consumer bills.
UK Electricity vs Gas Unit Price Ratio, 2020-2026
How much more per kWh you pay for electricity than gas. The UK has the highest ratio in the EU.
Source: Ofgem data; House of Commons Library, CBP-9714.
What this means for your bill
The Q2 2026 price cap decreased 7% to £1,641, but most available fixed tariffs remain around £2,000. The Q3 outlook remains uncertain with Middle East tensions influencing wholesale markets.
What to do right now
- Fixed tariffs appear overpriced. At ~£2,000 vs a cap of £1,641, a fix only pays off if prices rise sharply.
- Staying on the cap is reasonable - but keep watching, since Q3 could move back toward £2,000.
- Consider installing a smart meter. Time-of-use tariffs enable shifting consumption to lower-cost periods.
- Do not wait for regulatory reform. Compare what other suppliers offer and switch when it saves you money.
The bottom line
Gas will continue determining UK electricity prices until sufficient clean power displaces it from the merit order. Otherwise, the UK government must restructure the market. Spain demonstrates that the renewable pathway delivers results. In the short term, neither approach will reduce your electricity bill. Compare tariffs across energy companies and switch when the economics work in your favour.