Electricity: Domestic Pricing

Debate between Lord McCabe and Lord Whitehead

Tuesday 21st April 2026 Lords Chamber

[Lord McCabe]

To ask His Majesty’s Government what plans they have to review the effect of the marginal pricing structure on the cost of electricity for domestic consumers.

[The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)]

Delivering lower bills and a secure energy supply for working families and businesses is at the heart of the Government’s sprint toward homegrown clean energy. Marginal cost pricing has historically incentivised the cheapest forms of energy to provide as much power as possible. That worked well when the competition was between fossil fuel producers, but less well when there are many cheaper bids from renewable sources for power supply but still the price can be set by more expensive and volatile gas. Accelerating the development of renewable generation, as we are now through clean power 2030, will progressively reduce to a residuum the amount of time that gas sets the price.

[Lord McCabe (Lab)]

I am grateful for that Answer and I welcome the direction of travel on energy security and price stability, but do we not need to work harder and faster to decouple gas from electricity prices? Is it not true that gas accounts for about 30% of electricity generating but that the effect of gas on the price mechanism is responsible for the huge bills landing on households and businesses up and down the country?

[Lord Whitehead (Lab)]

My noble friend is absolutely right. Although gas accounts for only 30% or so of the market, at the moment it sets the price over 60% of the time with marginal cost pricing arrangements. It is right that we need to go faster and further. Indeed, today the Government have announced plans, among many other things, to ensure that the element of the renewable input into the system—on renewables obligations rather than fixed-price contracts for difference—can be moved over to that latter category as soon as possible, thereby bearing down on the amount of time that gas sets the price in the market.