The Government must bring down the cost of electricity relative to gas or risk continuing to lock homes and businesses into high prices, according to a new report from Energy UK. Sparking Change: How to make clean heat cheaper and accelerate electrification, supported by Mitsubishi Electric, sets out how a proposed reduction in the electricity-to-gas price ratio – known as the spark gap – could encourage at least 250,000 additional domestic heat pump installations by 2030 and boost the competitiveness of UK businesses while strengthening energy security.
In the year leading up to July 2026, when the impact of increased wholesale gas prices resulting from international conflict began distorting the spark gap, electricity costs were around four times as much as gas per unit. Policy costs added to electricity bills contribute to this imbalance by artificially increasing prices and weakening the financial case for switching to clean heat – despite heat pumps being far more efficient than gas boilers.
The report calls for a long-term ambition to reach a spark gap ratio of 2.5:1 for households, and sets out a pathway to achieve an interim target of 3:1 by 2030 by:
- Removing all remaining policy costs from electricity bills and either placing into general taxation, at a cost of £2.5 billion per year, or a new financing mechanism to distribute the cost of levies over a much longer period.
- Moving the gas standing charge onto the unit rate from April 2028 supported by price protections for low-income, high gas consumption households and regulatory changes to manage the risk of supplier costs recovery.
- Improving access to low-cost green finance and tailored advice to overcome knowledge barriers and drive uptake of clean heat solutions.
Bringing the spark gap down to a ratio of 3:1 by 2030 could save a medium dual-fuel customer around £40 on their annual energy bill. If they were to install a heat pump, this could rise to £300.
Moving policy costs into general taxation has already been proven to drive down the cost of electricity against gas. Energy UK estimates the temporary 75% Renewable Obligation discount announced in the 2025 Autumn Budget reduced the spark gap from 4.4:1 to 4:1.
Delivering change for business
Tackling the high cost of electricity is also vital for UK businesses, which face some of the highest industrial electricity prices in the G7.
The report places the non-domestic spark gap between 4.2:1 and 4.5:1 today, depending on the type of and size of business, falling to a range of 3.9:1 and 4.3:1 in 2029/30.
This slight fall will not be enough to encourage businesses to move away from gas heating. Without any formal targets or policies to drive the uptake of clean heat, the non-domestic will remain exposed to volatile international gas prices.
To bring down the spark gap in a meaningful way for businesses, the report calls for:
- Removal of Renewables Obligation (RO) and Feed-in Tariff (FiT) costs for all businesses by moving into general taxation, at an average of £4.8 billion until 2031 when costs will start to decline, or an Energy Transition Funding Scheme.
- Reforms to business energy taxes by taking Climate Change Levy charges off non-domestic electricity, which would cost the Exchequer an average of £632 million per annum between FY2027/28 and FY2030/31.
- Support for business electrification and energy demand management by:
– Introducing a Business Energy Upgrade scheme for SMEs.
– Offering a targeted electricity price discount focused on space heating to enable larger firms to achieve a 10% return on capital costs through energy bill savings.
– Reforming Enhanced Capital Allowances (ECAs) to support the uptake of low-carbon, highly efficient equipment.
Dhara Vyas, Chief Executive of Energy UK, said:
“Homes and businesses across the UK are struggling with high energy costs while a key driver of those costs remains unchallenged. The single most effective step the Government can take to improve affordability, make better use of our energy system and accelerate the uptake of cleaner technologies is to reduce the price of electricity relative to gas.
“Tackling the gap between electricity and gas prices will make it easier for people to choose clean, electric heating options, encouraging electrification across the UK as the best way to deliver more stable, secure energy prices for customers. Without action to tackle the root causes of high electricity bills, too many are locked out of these benefits.
“Closing the spark gap will also help tackle cost-of-living pressures, drive reindustrialisation, and strengthen the resilience of our energy system and national security.”
Russell Dean, Heat Pump Expert at Mitsubishi Electric, said:
“This report clearly highlights a pressing challenge we must now address: UK businesses face some of the highest electricity prices in the G7, and for homeowners, electricity has historically been four times more expensive than gas.
“We have seen welcome measures, like the recent the VAT cut on electricity bills, trying to tackle this but ultimately, temporary relief alone is not enough to reduce this fundamental imbalance.
“We must instead see lasting policy reform to permanently rebalance electricity and gas prices and make low-carbon heating affordable for many more homes and businesses. Narrowing the price difference between electricity and gas to 2.5:1 in the long-term – with an interim 2030 target of 3:1 that could help heat pump uptake boom to at least 250,000 – would massively accelerate the UK’s transition to low-carbon heating.”
The report Sparking Change: How to make clean heat cheaper and accelerate electrification is available now: https://www.energy-uk.org.uk/
Energy UK and Mitsubishi Electric are taking the recommendations of the report directly to government by hosting a roundtable with officials to discuss its findings on 20 October.
