Every six weeks Andrew Sissons - director, sustainable future - assesses the most important signals and trends underpinning the UK’s energy transition.

Britain is set for another painful winter, with wholesale gas prices surging as the conflict in the Gulf continues. This is driving up inflation just as the Chancellor prepares an already difficult Budget.

But there is a ray of sunlight amid the gathering clouds: electricity prices in Britain are rising much more slowly, and may have begun their long-awaited decoupling from gas prices.

From October, a typical household gas bill will be 33% higher than in April, a £200 increase in the annual bill. Electricity bills will have risen just 4% over the same period. Some of that is down to Andy Burnham removing VAT from electricity, but bills would only be 9% higher without that change. EDF’s forecast for January suggests this trend will continue into next year, with household gas prices rising by 77% since April and electricity prices up by only 29%.

This is an unusual pattern in Britain. Gas and electricity bills are normally closely linked, because gas-fired power plants mostly set the unit cost of electricity, and therefore play a major role in setting prices. When household gas prices rose by 88% after Russia’s invasion of Ukraine in 2022, electricity prices rose by 68%. This time around, electricity is much less affected by the crisis.

What is driving this decoupling?

The answer we’re primed to hear is that we have partially broken the role of gas in setting electricity prices, by building so much clean power that we rely on gas much less often.

But this is not the cause. Electricity spot prices have generally increased in line with gas prices. Instead, Contracts for Difference (CfDs), which are used to guarantee a fixed price for renewable energy, have been the key agent of decoupling.

When market prices for electricity rise, CfD prices do not - instead, they “pay back” more to energy customers. With a growing share of electricity covered by CfDs - and with newer, cheaper renewable CfDs coming on stream - this causes overall electricity prices to rise by less than gas prices.

This should be an obvious good news story for the government: its all-out push for clean power is helping shield Britain from the Iran crisis. But it is hard to sell a double negative to the public. Energy bills may be rising less than they would have done, but they are still rising. Electricity has not become cheap, but gas has become much more expensive.

Underlying this is a challenge and an opportunity

The challenge is that this decoupling could still become a liability. If gas prices were to fall significantly, we should not expect electricity prices to follow them. Electricity is increasingly a fixed cost system, dominated by the cost of building renewables (paid for by CfDs) and the electricity grid. These costs will not fall if the current energy crisis eases, and the UK government must keep them as low as possible.

The opportunity is to use this crisis to reduce Britain’s reliance on gas altogether. High gas (and oil) prices make alternative clean technologies - heat pumps and electric vehicles - much more attractive, and they in turn dramatically reduce oil and gas use. Donald Trump’s war has driven the ratio of electricity to gas prices - crucial to the adoption of low carbon technology - down to 3.3, close to its record low. This is something clean energy advocates could only have dreamed of at the start of the year.

The government should go further to build on this, by further reducing the fixed costs of electricity and encouraging more people to switch to clean heating and transport. There has already been some progress on this; Rachel Reeves’ final Budget cut £1.7 billion per year worth of levies off electricity bills, while the heat pump subsidy for households with oil heating has temporarily increased. But there is more to do.

The Chancellor should set a target for the electricity to gas price ratio to remain below 2.9, which is eminently achievable with modest changes at the Budget. That includes removing the remaining levies from electricity bills, while abolishing the standing charge on gas and moving the costs on to unit rates. These measures would make electric heating technologies the most effective way for British homes to lower their energy bills, as well as reduce reliance on imported gas.

Rising gas prices may be a headache for Andy Burnham now, but by doubling down on Labour’s successes on clean electricity, he could yet turn it to his advantage.