The UK Treasury and the Department for Energy are working on proposals to separate electricity prices from the cost of gas, a step that could lower wholesale power rates and create headwinds for generators with exposure to UK output.
Chancellor Rachel Reeves said she and Energy Secretary Ed Miliband are collaborating on plans to "delink" electricity prices from gas, and indicated that additional details should be available "in the next sort of few days, weeks." The countrys wholesale power market currently operates under a marginal pricing system in which gas-fired plants frequently determine the market clearing price for electricity.
In a briefing note, analysts at Jefferies warned that the government proposals - together with a planned removal of the Carbon Price Support tax from April 2028 - could create negative outcomes for utilities that own merchant renewable and nuclear generation in the UK. Jefferies specifically named Centrica Plc (LON:CNA), SSE Plc (LON:SSE), RWE (ETR:RWEG) and rsted (CSE:ORSTED) as companies to watch.
Jefferies described two potential adverse developments for those operators: the proposed changes to how electricity prices are set, and the scheduled abolition of the Carbon Price Support. The Carbon Price Support is a tax applied to fossil fuels used in UK electricity generation and contributes to power prices when carbon-emitting generation sources, such as gas, set the market price.
The analysts offered a quantification of the potential earnings sensitivity: they estimated that roughly a pound;5 per megawatt hour move in power prices would translate into an approximate 2% to 3% negative effect at the net income level for UK generators, with rsted estimated at about a 1% impact.
Separately, Chancellor Reeves noted the government is progressing work on the technical aspects of North Sea oil and gas "tiebacks," which use existing infrastructure to bring additional resources on stream. The comments link energy policy adjustments on pricing mechanics with operational initiatives intended to expand hydrocarbon output.
Sector implications
- Utilities and power generators operating merchant renewable and nuclear assets in the UK face direct exposure to changes in wholesale pricing mechanics.
- The broader energy sector may be affected through shifts in electricity revenue and policy-driven changes to carbon-related taxes.