The government’s latest energy market consultation proposes a structural fix: breaking the decades-old link between gas and electricity prices. For UK homeowners, this is the single most consequential policy shift since the Renewable Heat Incentive.
As reported by GOV.UK, the proposal aims to ensure that electricity prices reflect the actual cost of generation, which is increasingly from renewables, rather than being pegged to volatile gas markets. The effect on household bills could be dramatic.
Why this matters to your heating bill
Right now, a heat pump running at a coefficient of performance of 3.5 costs roughly the same per kWh of heat as a gas boiler at 90% efficiency. That is because electricity carries about four times the unit cost of gas, even though the heat pump uses far less energy. The price distortion has been the single biggest barrier to heat pump adoption in UK homes.
Ofgem data shows that in 2023, gas-fired power stations set the wholesale electricity price 72% of the time, even though they supplied only 38% of generation. The margin between cheap renewables and the gas-pegged price has been pocketed by generators as windfall profits. The government’s plan would replace that system with a ‘zonal pricing’ or ‘marginal cost’ model that matches the price to the cheapest available generation at any moment.
For a typical 3-bed semi using 4,000 kWh of electricity per year, the saving could be £100–£150 on the electricity bill. But the real gain is for homes with heat pumps: a household using 12,000 kWh of heat via a heat pump would see its running cost fall from roughly £1,200 to £800 annually, undercutting a gas boiler’s £900 annual fuel cost for the first time.
Who qualifies, and who doesn’t
The consultation is open to all GB electricity customers, but the benefits will be unevenly distributed. Homes on standard variable tariffs will see the full effect; those on fixed-price deals may have to wait until their contract renews. Off-gas-grid homes using electric storage heaters or heat pumps stand to gain the most, as they currently pay the highest electricity premium.
The catch is timing. The government has not set a firm implementation date; officials say ‘by 2027 at the earliest’. Meanwhile, the current price cap already includes a £20 per year levy to fund the boiler upgrade scheme, which provides £7,500 grants for heat pumps. If electricity prices fall, that grant may need to be recalibrated, but the net effect remains strongly positive for households considering the switch.
Energy Saving Trust modelling suggests that a typical semi-detached home with a heat pump and solar panels could see total annual energy costs drop by £400–£600 under the proposed pricing reform.
What it costs a typical 3-bed semi
Let’s put numbers on it. A 3-bed semi with cavity wall insulation, double glazing, and a modern heat pump currently pays about £1,400 for electricity and £800 for gas. Under the proposed reform, that electricity bill could fall to £1,100, while the gas bill stays largely unchanged. The combined saving of £300 a year is real money, and it stacks up over the 15-year lifespan of a heat pump.
More importantly, the EPC rating improves. A property moving from an EPC band D (gas boiler) to band C (heat pump) typically adds 2–5% to its market value, according to Nationwide data. That’s £6,000–£15,000 on a £300,000 home, far more than the £7,500 grant covers.
But the reform only works if households can afford the upfront cost of a heat pump. The boiler upgrade scheme currently covers most of that, but applications take 8–12 weeks to process. The government should consider extending the grant period or introducing a zero-interest loan scheme to bridge the gap until the lower electricity prices arrive.
Households on standard variable tariffs can register their interest through the consultation portal at gov.uk. The consultation closes on 31 March 2025. If you are considering a heat pump, now is the time to get a quote, before the grant scheme changes or demand surges.
Frequently Asked Questions
For a typical 3-bed semi using 4,000 kWh of electricity per year, you could save £100–£150 annually. Homes with heat pumps could see bigger savings, with running costs dropping from £1,200 to £800 per year for 12,000 kWh of heat.
The government's consultation proposes changes by 2027 at the earliest, but no firm implementation date has been set. The plan aims to replace the current system with zonal pricing that matches electricity costs to the cheapest available generation.
Yes, under the proposed reform, a heat pump's annual running cost for 12,000 kWh of heat would fall from £1,200 to £800, undercutting a gas boiler's £900 fuel cost for the first time. Currently, heat pumps cost about the same as gas boilers due to electricity being four times more expensive per unit.
Off-gas-grid homes using electric storage heaters or heat pumps stand to gain the most, as they currently pay the highest electricity premium. Homes on standard variable tariffs will see the full effect immediately, while those on fixed-price deals may have to wait until their contract renews.
Energy Saving Trust modelling suggests a typical semi-detached home with a heat pump and solar panels could see total annual energy costs drop by £400–£600. This is on top of the current £7,500 boiler upgrade scheme grant available for heat pumps.
