Gas sets the UK wholesale electricity price around 60% of the time. When gas prices spike, so do electricity bills even for heat pump owners who use no gas at all. The government has announced reforms to break this link. They are real and the direction is right, but meaningful bill relief is 2 to 3 years away at minimum.
Every time there is a global gas crisis, the same question surfaces: why does my electricity bill go up if I don't even use gas? It is a fair question. The answer sits in how the UK electricity market is structured and understanding it is useful whether you already have a heat pump or are deciding whether to get one.
Energy Secretary Ed Miliband put the stakes clearly in today's announcement: "the era of fossil fuel security is over, and the era of clean energy security must come of age." The measures published today by the Department for Energy Security and Net Zero are the government's attempt to act on that.
How the UK Electricity Market Works
The UK wholesale electricity market uses marginal pricing. Every half hour, the grid has to balance supply and demand. Generators bid to supply electricity into the market. The grid operator calls on them in order of cost, starting with the cheapest.
Wind and solar have near-zero fuel costs. They get called first. Nuclear has low and predictable costs. It runs continuously. But wind and solar are intermittent - they don't generate when the wind isn't blowing or the sun isn't shining. And even when they do, demand sometimes exceeds what they can supply.
Gas fills the gap. Gas plants can be turned on quickly, scaled up and down and relied upon at short notice. That makes gas the balancing technology for the grid.
Here is the critical part: in a marginal pricing market, every generator supplying electricity at a given moment gets paid the price bid by the last generator called upon to meet demand. And that last generator is usually gas.
So wind farms, solar arrays and nuclear stations all get paid the gas price even though their fuel cost is nothing.
When gas is cheap, that is fine. When gas prices spike - as they did after Russia invaded Ukraine in 2022, and again following the current conflict in the Middle East - electricity bills follow. Even for households that have never burned a cubic metre of gas in their lives.
How Far Has the UK Already Come?
It is worth acknowledging the progress. Gas set the wholesale electricity price around 90% of the time in the early 2020s. That figure is now around 60%. The difference is the significant buildout of contracted renewables since 2020.
Around 20% of UK electricity generation currently sits on fixed-price Contracts for Difference (CfDs). These generators have a locked-in strike price agreed at auction. They do not receive the prevailing gas price - they receive their contracted rate.
The government's own estimate is that gas will set the electricity price around half of the time by 2030 on the current trajectory. That is meaningful progress, but it is not the same as breaking the link.
What Is the Renewables Obligation Problem?
This is where today's announcement comes in.
Around 30% of UK electricity generation sits on an older support mechanism called the Renewables Obligation (RO). These are legacy wind and solar farms built before the CfD system existed. They receive a subsidy on top of the wholesale price and that wholesale price still tracks gas.
When gas prices spike, RO generators receive a windfall. Their revenue goes up even though their costs have not changed. Consumers pay the inflated price. This is the mechanism that produced large windfall profits for some generators during the 2022 energy crisis, while households were struggling with bills.
What the Government Is Doing About It
The government has announced two measures targeted at this problem.
Wholesale Contracts for Difference
The government is offering legacy RO generators a voluntary move onto a new fixed-price contract: the Wholesale Contract for Difference. Instead of receiving the variable gas-linked wholesale price, generators would lock in a fixed rate agreed through an allocation process.
This is a significant structural change if enough generators participate. Moving 30% of generation from variable gas pricing to fixed contracts would substantially reduce how often and how severely gas influences the electricity price consumers pay.
A formal allocation process for Wholesale CFDs is planned for 2027.
What Does This Mean for Heat Pump Running Costs?
Heat pumps run on electricity. The electricity pricing problem described above is therefore directly relevant to heat pump economics.
Over the past three years, elevated electricity prices have compressed the running cost advantage of heat pumps over gas boilers for many households. The de-linking reforms improve this over time - more fixed-price generation means a lower and more stable electricity price, which means a better running cost case for heat pumps.
The Honest Position for 2026
For gas homes, the running cost case for a heat pump depends on your specific tariff and system efficiency. It is not universally favourable today, but it is improving.
For oil and LPG homes, the running cost case is already favourable at current fuel prices for a well-designed system. Oil and LPG have no price cap equivalent. The volatility risk of staying on those fuels is now well-documented. Switching removes that exposure immediately.
The Efficiency Variable No One Talks About Enough
Whatever happens to electricity prices, the single biggest determinant of heat pump running costs is system efficiency measured as COP, or coefficient of performance.
A heat pump running at a COP of 2.0 produces 2 units of heat per unit of electricity consumed. One running at COP 3.8 produces nearly twice as much heat per unit of electricity. The difference in running cost between those two systems at the same electricity price is enormous.
COP is determined by system design. Flow temperature, emitter sizing, pipe layout, controls configuration - all of these affect how efficiently a heat pump operates. This is why Heat Geek exists. Most of the heat pump performance problems seen in the UK trace back to poor design rather than the technology itself.
The Bigger Picture
The structural direction is clear. The UK electricity system is moving, systematically, away from gas price exposure. More fixed-price generation, less gas at the margin, gradually lower and more stable electricity prices. Combined with the end of cheap gas as a geopolitical reality, the economics of electrification strengthen year on year.
Gas currently sets the UK wholesale electricity price approximately 60% of the time. Government estimate for 2030 is approximately 50% on current trajectory. Wholesale CFD allocation process planned for 2027. All figures based on government announcements of April 2026.
