The next occupant of 10 Downing Street will inherit an electricity market that charges British households roughly 50% more than the EU average. That is not a talking point from a think-tank pamphlet. It is a fact confirmed by the International Energy Agency and cited by every major energy analyst this year.
As BusinessGreen reported this week, the case for reform is now so loud that even the party manifestos are scrambling to respond. But for homeowners wondering whether to install a heat pump or add solar panels, the question is simpler: when will the price of electricity stop punishing the switch away from gas?
What a typical household pays — and why
Ofgem’s price cap currently sets the typical annual dual-fuel bill at £1,928. But the unit rate for electricity — about 24p per kWh — is nearly four times the wholesale cost of gas. That gap is not natural. It is engineered by a pricing system called marginal cost pricing, where the most expensive power plant (usually gas) sets the price for all generators.
The result: when gas prices spike, every kWh of renewable electricity sold at that inflated price generates windfall profits for generators, not savings for households. The Energy and Climate Intelligence Unit estimates UK households paid £2.5bn in excess costs last year because of this mechanism alone. That is £90 per home, every year, for a market design that no other major European country has kept untouched.
Reform options on the table include decoupling renewable pricing from gas, moving green levies from electricity to general taxation, and reducing network charges for homes that generate their own power. The previous government consulted on these ideas in 2023. The next government will have to implement them.
Who qualifies — and who doesn’t
Any reform that shifts costs from electricity to gas or general taxation will benefit every household on a standard tariff. But the biggest winners will be homes that have already electrified their heating or plan to do so. A typical 3-bed semi with a heat pump uses about 4,000 kWh of electricity per year for heating alone. If the unit rate drops from 24p to 18p — the EU average — that household saves £240 annually.
Yet the catch is timing. No reform will take effect before 2026 at the earliest. The next PM must first win a general election, form a government, and push legislation through Parliament. Meanwhile, households on standard variable tariffs can switch to a fixed deal now and lock in rates around 22p per kWh, according to comparison sites. That is a smaller saving than reform would bring, but it is available today.
For off-grid homes and those in rural areas, the picture is worse. Network charges are higher per unit because fewer customers share the infrastructure. Reform that flattens these regional differences would help, but the current consultation process from Ofgem does not propose equalisation until 2028.
What you can do now while Westminster debates
Waiting for political consensus is a strategy that costs money. The Energy Saving Trust recommends three actions that pay back before any reform arrives.
First, insulate. The average semi-detached home loses 35% of its heat through walls and roof. Spending £2,000 on loft and cavity wall insulation cuts annual heating costs by about £345 at current prices. That return is independent of electricity pricing.
Second, generate. Solar panel installation costs have fallen to around £5,500 for a typical 4kW system. With the Smart Export Guarantee paying 15p per kWh exported, and self-consumption saving you the full 24p per kWh, payback is now under 10 years even without reform.
Third, switch. The cheapest fixed tariff on the market today — about £1,800 per year for typical use — is £128 below the price cap. That gap will narrow if reform cuts electricity costs, but the saving is real and immediate.
The next PM will inherit a system that penalises electrification. But the tools to cut your own bills are already in your hands. Use them now, and let Westminster catch up later.
Frequently Asked Questions
If the government removes green levies from electricity and splits renewable pricing from gas, the unit rate could fall by 20-30%. That would save a typical household £150-£250 per year. But reform is unlikely before 2026, and the final design depends on the next Parliament.
The £7,500 Boiler Upgrade Grant is available until 2028 and covers most of the installation cost. Waiting for cheaper electricity risks missing the grant. A heat pump installed now will save you money even at current rates, and any future reform will only increase those savings.
