UK solar plants without fixed-price contracts will be offered voluntary long-term fixed-price agreements under a new “Wholesale Contracts for Difference” regime from 2026. The policy seeks to reduce exposure to volatile wholesale prices driven by gas.
Image: derek dye, Wikimedia Commons, CC BY-SA 2.0
UK solar plants without a fixed-price contract will be offered a new voluntary long-term agreement as part of a broader push by the government to try and reduce energy bills for consumers. The new “Wholesale Contracts for Difference” regime will apply to all renewable energy technologies and will be introduced as a voluntarily offer later in 2026, with an allocation process scheduled for 2027.
The UK government also announced an increase to the rate of tax applied through its Electricity Generator Levy, which is paid on wholesale electricity sold at GBP 75 ($100)/MWh or more.
First introduced in 2023, the levy applies a 45% charge on generation over the threshold, described as exceptional receipts. The rate will be increased to 55%, a move which the UK government said will ensure the government can support businesses and households “with the impacts of the conflict in the Middle East on the cost of living.”
The role of gas in setting electricity prices has come under increasing political fire in the United Kingdom as consumers grapple with high energy bills. Great Britain’s wholesale electricity market works on a pay-as-clear model which sees all generators paid the price of the auction’s highest clearing bid for the electricity they supply. This can result in significantly higher revenues at times when gas-fired generation sets the market price.
This approach has been criticized by some as artificially inflating the electricity price for consumers by paying renewables generators high prices at times when gas sets the wholesale price, despite the relatively low marginal cost of renewables generation. Others have argued the potential upside encourages investment in renewables and battery energy storage systems.
UK energy stocks fell ahead of the government’s announcement as the markets reacted to potential intervention. Senior UK politicians had been floating a plan to “break the link” between gas and wholesale electricity prices ahead of the announcement.
While full details of the voluntary fixed-price contracts have not been released but the UK government estimates a significant share of renewable generation – about 30% of Great Britain’s power supply – is still exposed to wholesale prices set by gas.
In a press release accompanying the announcement, Prime Minister Keir Starmer, said the United Kingdom needs to “get off the fossil fuel rollercoaster.”
“This will make energy bills more stable and take the pressure off family budgets,” Starmer said.
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