UK budget: Energy secretary urged to end renewables cost being pegged to gas prices in move that could save businesses £11bn a year

The UK energy secretary has been urged to end renewables being pegged to gas prices in a move the SNP say could save businesses £11 billion a year.

Alan Brown, the party spokesperson for energy and climate change, has written to Grant Shapps asking him to act due to the “terrible cost-of-living crisis”. At the moment, the way electricity auctions are designed means the price is closely pegged to the price of gas.

But under plans first proposed by the UK Energy Research Centre, the cost of electricity from sources such as nuclear, solar and windfarms would be separated from the soaring prices being paid for electricity generated by burning gas.

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Energy UK, the trade body for the sector, said the proposals could cut £18bn a year from energy bills, including £11bn for businesses.

Business Secretary Grant Shapps has been urged to end renewables being pegged to gas prices.

Mr Brown said: “Under the Tories at Westminster, the cost-of-living crisis is growing worse by the day. Inflation is at a record high and rising, food banks have seen record use, and warm banks are being set up across the UK for those who cannot afford to heat their homes.

Scotland didn’t vote for this UK Government and we shouldn’t have to put up with its incompetence. The Tories must urgently get a grip. One way the UK Government can ease the pressure on households and businesses is by decoupling the price of retail energy from expensive gas bills.

“Right now, the unit prices for all forms of energy are pegged to gas prices, meaning that those using renewable energy to power or heat their home, which is much cheaper, are still being adversely affected by rising gas prices.

“The UK Government must urgently fix this unfair system. Doing so could lower energy bills by up to £18bn a year for both businesses and households, according to Energy UK.”

In his letter, the Kilmarnock and Loudoun MP added: “At a time where savings at all levels are important, and where energy prices are among the year's biggest concerns, it makes no sense that the use of cheap renewables, which are a vital part of tackling the climate crisis, is not feeding through to the consumer.

Former chancellor Kwasi Kwarteng is understood to have met members of Energy UK to discuss the proposal earlier this year, while other countries are believed to be considering similar moves. Gas prices have more than tripled since Russia began reducing the volumes sent to Europe following its invasion of Ukraine.

Chancellor Jeremy Hunt is expected to make the support plan for energy bills less generous from April, instead switching to more targeted measures to save the Treasury billions. He is considering increasing the windfall tax on oil and gas giants from 25 per cent to 35 per cent, while also expanding the levy to electricity generators.

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It came as Mr Hunt claimed the UK is spending £22bn more on debt interest in the year to date than at the same time last year – more than the entire Home Office budget. The Department for Business, Energy and Industrial Strategy was approached for comment.

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