King's Speech 2026: Electricity Generator Levy Bill

Electricity Generator Levy Bill

● Instability in the Middle East has shown that Britain’s reliance on international
fossil fuel markets leaves families and businesses exposed to volatile gas
prices, driving the cost of living crisis, even though much of the country’s
electricity comes from cheaper renewables and nuclear power. In the UK,
over 50 per cent of electricity is generated from renewables. However,
electricity prices are still largely set by the price of gas.

● To address this, the Government will break the link between electricity and
gas prices by moving older generators onto new fixed-price contracts.
Alongside this, the Government is increasing the rate of the Electricity
Generator Levy (EGL) to ensure a proportion of any exceptional revenue that
generators receive because of spikes in gas prices, is available to the
Government to support businesses and households with their cost of living.

What does the Bill do?

● In April 2026, the Government announced action to uncouple electricity prices
from gas prices. The UK offers new low-carbon generators a long-term
contract that guarantees a stable, fixed price for the electricity they produce
(Contracts for Difference). The Government will encourage existing eligible
generators to accept a fixed price for the electricity they generate (wholesale
Contracts for Difference). This will be a voluntary offer and is subject to
consultation in due course.

● To support the aim to drive eligible generators onto fixed-price contracts, the
Government has announced an increase in the Electricity Generator Levy rate
from 45 per cent to 55 per cent from 1 July 2026. This Bill will deliver that
change.

● This increase will encourage participation at a competitive price in wholesale
Contracts for Difference and ensure that a proportion of any exceptional
revenue that generators may receive because of the conflict in the Middle
East is available to the Government to support businesses and households
with their cost of living.

● The Government also announced it will extend the Electricity Generator Levy
past its scheduled conclusion in 2028. The Government will set out plans and
legislate for this extension at a later date.

110
Territorial extent and application

● The Bill will extend and apply to the whole of the UK.

Key facts

● The Electricity Generator Levy was introduced from 2023 to tax the
extraordinary returns realised by some renewable electricity generators who
were achieving prices set by gas-fired electricity generation without facing
commensurate increased costs.

● The increase to the rate of the Electricity Generator Levy was
announced alongside a wider package of market support and reform.
Most prominent was the introduction of a wholesale Contract for Difference,
which would offer existing eligible generators, who are not already contracted
under a long-term fixed contract, the option to accept a fixed price for the
electricity they generate. Other measures included larger grants for
households on heating oil and liquefied petroleum gas to install heat pumps,
as well as reforms to the planning and connection processes.

● HMRC will publish guidance to support the change. Receipts for
accounting periods that straddle 1 July 2026 will be time-apportioned so that
the higher rate applies only to revenues arising after that date.

● The End Fuel Poverty Coalition has said “For too long, households and
businesses have been paying electricity bills linked to and inflated by a gas
market they have no control over. This is a structural failure in how our energy
system is priced and it has cost households dearly. Raising the levy on
generators that pocket windfall profits when bills soar is the right thing to do.

111
 STRENGTHENING OUR NATIONAL SECURITY