The UK's decision to raise the electricity windfall tax and push legacy renewable generators onto fixed-price contracts is "overdue" and could boost demand for batteries, industry figures told Argus this week.
The government on Tuesday announced plans to offer voluntary long-term fixed-price contracts to low-carbon generators not already on contracts for difference. The plans cover about 30pc of Britain's power supply, while lifting the Electricity Generator Levy to 55pc on revenues above £82/MWh from July.
The measures aim to reduce the extent to which global gas price swings feed into household and business electricity bills, rather than directly lowering wholesale prices. Ministers say fixed pricing should shelter consumers when gas prices spike, even if wholesale electricity prices still move.
For battery supply chains, that shift matters less for near-term wholesale trading spreads than for demand. More stable electricity prices make electrification easier to plan, finance and justify.
Gas has already slipped to setting the UK wholesale electricity price 60pc of the time, down from around 90pc at the start of the decade, the government said. Ministers expect that share to fall further as more generation moves off wholesale-linked pricing.
That is particularly important for electric vehicles (EVs) and fleets, said Peter McDonald, director at London-based charging firm Ohme. The policy is designed to dampen the impact of gas-driven volatility on final bills, rather than guarantee cheaper power, he said — a distinction that still matters for consumers weighing monthly costs.
"For many consumers sitting on the fence, the monthly cost comparison is the deciding factor," McDonald said. "This could be a meaningful nudge."
Andy Palmer, vice-chair of Slovakian battery maker InoBat and former chief executive of British carmaker Aston Martin, said attempts to de-link electricity pricing from international gas markets were "overdue". Britain has spent years telling industry that renewables are the cheapest source of power, while still setting prices using the most expensive generator in the system, Palmer said. Fixing that contradiction is "the single biggest thing government can do" to restore manufacturing competitiveness.
Demand signal more important than spreads
Lower, more predictable electricity prices could "make the economic case for EV fleets, electric buses and depot-scale storage materially stronger", Palmer added, spurring demand for battery systems.
That demand-side pull matters if the UK wants to anchor more of the battery value chain at home, rather than rely on imported cells and packs.
The reforms are unlikely to undermine the economics of battery energy storage, even if they trim wholesale price volatility at the margin. In the UK, wholesale arbitrage remains the main revenue source for battery operators, while balancing services are increasingly saturated and longer-duration support schemes do not begin until later in the decade.
Large amounts of flexibility are still needed as renewable output grows and increasingly exceeds gas-fired generation, Palmer said, so well-located and optimised storage assets should continue to find revenue.
"The risk is execution." Set strike prices too high and consumers overpay; set them too low and investors step back, raising the cost of future projects, Palmer said.
It is a tension the government has observed before. Last summer's decision to scrap regional power pricing showed how wary ministers remain of reforms that might unsettle investment signals, even if they promise lower bills.
