Energy UK has just released a Report that calls for a reduction in the electricity-to-gas price ratio – known as the spark gap.
The aim is to encourage 250,000 additional domestic heat pump installations by 2030 and help boost the competitiveness of UK businesses while strengthening energy security.
Sparking Change: How to make clean heat cheaper and accelerate electrification, highlights how the Government needs to bring down the cost of electricity relative to gas or risk continuing to lock homes and businesses into high prices.
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.
Closing the spark gap helps tackle the cost-of-living, drives growth, and strengthens national security
Russell Jones Content and communications manager
A commercial disadvantage
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.
Without any formal targets or policies to drive the uptake of clean heat, the non-domestic will remain exposed to volatile international gas prices.
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.
“Homes and businesses across the UK are struggling with high energy costs while a key driver of those costs remains unchallenged,” explains Dhara Vyas, Chief Executive of Energy UK. “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.”
Household bills
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.
On behalf of Mitsubishi Electric, which has supported the Report, Deputy Divisional Director, Russell Dean, 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 must see lasting policy reform to permanently rebalance electricity and gas prices and make low-carbon heating affordable for many more homes and businesses.”
You can download the full Report here
Russell Jones is Content and communications manager
