The 1st July Energy Price Cap: What It Means for You

The latest energy price cap announcement marks a notable shift in the UK energy landscape, with potential long-term implications for how homes are heated.

For the first time in recent memory, gas and electricity prices are moving in very different directions.

• Gas: +27.7%
• Electricity: +5.8%
• Difference: 21.9 percentage points

Historically, price movements between gas and electricity have been broadly aligned. When one increased, the other tended to follow at a similar rate. This change breaks that pattern, and it may not be a one-off.

Instead, it reflects a broader shift in UK energy policy.

A Signal of Direction, Not Just a Price Change

While the headline figure is another increase in household bills, the underlying story is more important.

Electricity is beginning to rise more slowly than gas.

That matters because, for decades, electricity has been significantly more expensive per kWh than gas, often by a factor of four.

This imbalance has acted as a major barrier to electrification, from heating systems such as heat pumps and electric boilers to EV charging.

The latest price cap suggests that this gap may now be starting to close.

The Government’s Strategy: Making Electricity Cheaper

Recent government policy and announcements point to a clear direction of travel, shifting the UK energy system toward electricity as the primary energy source for homes and transport.

This is being delivered through a combination of short-term bill adjustments and longer-term structural reform.

1. Moving policy costs off electricity bills

The most immediate change comes from the decision to shift a large portion of environmental and policy costs away from electricity bills and into general taxation.

From April 2026, around 75% of Renewables Obligation costs will be removed from electricity bills. The government has indicated this could reduce average household energy bills by around £150 per year.

Why this matters:

• Electricity has historically carried a disproportionate share of policy costs
• This has artificially inflated electricity prices relative to gas
• Removing these costs is the first major step in rebalancing prices

For technologies like electric heating, this is a fundamental change.

2. Reducing the influence of gas on electricity prices

Another key reform targets how electricity prices are set in the UK.

Currently, the market operates on a “marginal pricing” model, where the most expensive generator, often gas, effectively sets the price for all electricity.

Even when renewable energy produces power at very low cost, gas can still dictate the final price.

The government has announced plans to:

• Move older renewable and nuclear assets onto fixed-price contracts
• Reduce the role of gas in setting electricity prices
• Increase price stability over time

This may already be starting to show in market trends. With more renewable generation on the system, electricity price increases have been significantly lower than gas in the latest price cap.

3. Clean Power 2030

Looking further ahead, the UK’s Clean Power 2030 strategy aims to structurally lower electricity costs by changing how it is generated.

Key elements include:

• Expanding offshore wind and solar
• Increasing grid capacity and flexibility
• Scaling up energy storage
• Reducing reliance on imported gas

The principle is simple: the more electricity generated domestically from low-cost renewables, the less exposed the UK is to international gas markets.

Over time, this should result in more stable and lower-cost electricity.

4. A consistent national pricing model

The government has also confirmed it will not introduce regional electricity pricing.

Instead, a single national price will remain in place across the UK. This avoids regional disparities and provides greater certainty for both households and investors.

A Turning Point in Electricity Demand

At the same time as these policy changes, another shift is emerging.

After nearly two decades of falling electricity consumption, demand in the UK is starting to rise again.

For years, electricity use declined due to:

• More efficient appliances
• LED lighting
• Reduced industrial demand
• Energy efficiency improvements in homes

However, recent data suggests this trend may now be reversing.

Electricity demand appears to be stabilising, and in some cases increasing, driven by:

• Growth in electric vehicles
• Increasing digital and data infrastructure

This is a significant moment.

To meet Net Zero targets, UK electricity demand is expected to rise substantially over the next decade, as heating and transport shift away from fossil fuels.

The Role of Electric Heating

While much of the discussion focuses on heat pumps, electrification of heating is broader in scope.

Electric heating technologies, including modern electric boilers and radiators, are increasingly being considered as part of that transition.

In particular:

• They allow room-by-room control, reducing wasted energy
• They avoid heating unused spaces
• They offer a practical alternative where gas is less suitable

As electricity becomes more competitively priced relative to gas, the case for electric heating strengthens.

The Bigger Picture

The key takeaway from the July price cap is not simply that bills are rising, but that the relationship between gas and electricity is changing.

For the first time in many years, government policy is explicitly focused on:

• Reducing electricity costs
• Limiting gas price influence
• Supporting long-term electrification

This shift matters because the future of home heating is increasingly electric.

For homeowners, landlords and installers, this raises an important question: how best to adapt to a system increasingly built around electricity.

And while change will not happen overnight, the direction is now clearer than it has been for some time.