Our proposal has a long-term ambition to reduce the standard domestic electricity price towards 15p per kWh.
But there is an important question that any credible electricity pricing policy must answer:
If electricity suppliers have to buy electricity months or years before it is consumed, can they procure that electricity cheaply enough to supply households at 15p/kWh and still make a reasonable profit?
The answer is more complicated than simply looking at today’s wholesale electricity price.
Electricity is bought years before it is used
Electricity is unusual.
It must ultimately be generated at almost exactly the same time that consumers use it, yet contracts for that electricity can be bought and sold years before the electricity itself is generated.
ICE Futures Europe, for example, lists Great Britain baseload electricity futures for delivery years into the future. Contracts are available for individual months as well as longer delivery periods.
A supplier therefore does not have to wait until a household switches on its kettle before purchasing the electricity required to supply it.
Suppliers can hedge their expected demand in advance.
That might mean buying some electricity years ahead, some a year ahead, more several months ahead and then using shorter-term markets as actual demand becomes clearer.
This is important because the wholesale price reported in the media today is not necessarily the price a supplier is paying for the electricity it supplies today.
Why looking only at day-ahead prices is insufficient
Our previous analysis has frequently examined day-ahead and short-term wholesale electricity prices.
Those prices remain useful. They tell us about the underlying cost and availability of electricity at a particular point in time.
But they do not tell us the complete cost of supplying a household.
Ofgem itself recognises this distinction.
Its electricity price-cap wholesale allowance includes the cost of purchasing initial hedging contracts, alongside additional costs including shaping and imbalance costs.
A supplier may therefore be supplying electricity today that it contracted to buy months or even years ago.
Equally, electricity being traded today for delivery next summer may have a completely different price from electricity for delivery this winter.
Any serious assessment of our proposed 15p tariff must therefore examine forward electricity prices as well as spot prices.
What does the forward market tell us?
The forward market provides a price today for electricity that will be delivered in the future.
This creates something called a forward curve.
For example, the market might simultaneously value electricity for:
- next month;
- next quarter;
- next summer;
- next winter;
- the following year; and
- subsequent years.
Those prices constantly change as traders reassess expected gas prices, generation availability, electricity demand, weather, storage, interconnector availability, geopolitical events and numerous other risks.
This produces an important insight.
A high electricity price today does not necessarily mean electricity is expected to remain equally expensive in the future.
Likewise, cheap electricity today does not guarantee cheap electricity next winter.
What does this mean for 15p/kWh?
The first thing to clarify is what our 15p proposal actually means.
We have not proposed that the wholesale component of a domestic electricity tariff must itself be 15p/kWh.
Nor have we yet prescribed a fixed wholesale allowance that suppliers must receive.
The 15p figure is the proposed consumer retail unit price.
Much of our initial reform is concerned with something different: removing costs that are currently embedded within the electricity unit price even though they are not the cost of generating or purchasing electricity.
Our roadmap deliberately reduces the electricity bill progressively.
We first make the bill transparent.
We then separate network costs from the electricity unit rate through the Network Access Charge.
Policy costs are removed from electricity bills and funded elsewhere.
Taxation is reformed.
Supplier costs and margins are subsequently addressed.
The purpose is therefore not to announce overnight that every supplier must sell electricity for 15p regardless of its procurement costs.
It is to systematically remove unrelated and hidden costs from the unit price until the price paid per kWh increasingly reflects the actual cost of electricity supply.
Can suppliers still make a profit?
They must.
A sustainable national tariff cannot depend upon suppliers selling electricity at a permanent loss.
Suppliers incur legitimate costs beyond the headline wholesale electricity price, including forecasting, hedging, shaping, imbalance, metering, billing, customer service and other operating costs.
There must also be a reasonable supplier margin.
Ofgem’s existing price-cap methodology already recognises this principle. The cap contains separate allowances for wholesale costs, supplier operating costs, uncertainty and risk, and supplier earnings.
Our proposal changes how those costs are recovered and how transparent they are. It does not pretend they do not exist.
The eventual regulated supplier margin and wholesale allowance therefore need to be determined using evidence from the electricity market.
The 15p target must be tested against forward prices
This gives us an additional test for the policy.
Instead of asking only:
“What was the average wholesale electricity price last year?”
we should also ask:
“At what price could a prudent supplier have secured the electricity it needs over the next 6, 12, 24 and 36 months?”
That means examining forward-market prices and modelling realistic supplier procurement strategies.
If the evidence shows that electricity can normally be secured sufficiently below the 15p retail rate to cover the remaining supplier costs and a reasonable margin, it strengthens the case for the target.
If particular periods do not, we should show those periods too.
Winter 2026 demonstrates why resilience matters
The recent forward market provides an important example.
Electricity for Winter 2026 became substantially more expensive as the delivery period approached.
That does not necessarily mean a supplier that had prudently purchased electricity earlier would suddenly pay the entire higher price.
Its existing hedges protect it from some of that movement.
A supplier that remained heavily exposed to the market until shortly before delivery, however, could face much higher procurement costs.
This is one reason electricity supply cannot simply be regulated by declaring a retail price and ignoring wholesale risk.
It is also one reason our proposal includes an Electricity Resilience Fund (ERF).
The ERF is protection against exceptional conditions
A 15p electricity system should not be designed around the assumption that wholesale electricity will always be cheap.
Wars happen.
Gas supplies can be disrupted.
Power stations fail.
Interconnectors can become unavailable.
Weather forecasts can be wrong.
Demand can exceed expectations.
Forward prices can move dramatically.
The system therefore needs financial resilience.
Under our proposal, the ERF provides a mechanism through which exceptional system costs can be absorbed without automatically converting every temporary wholesale shock into a permanently higher domestic electricity price.
But the ERF should not become insurance against poor supplier management.
That raises another policy question we will examine: whether suppliers participating in the national tariff should be required to demonstrate prudent forward procurement and hedging before exceptional wholesale costs can qualify for ERF support.
The public should not underwrite speculative or reckless trading.
Electricity is a remarkably complicated commodity
This analysis also demonstrates why reforming electricity is difficult.
Electricity can be financially traded years before delivery.
Yet when delivery finally arrives, approximately the right amount of electricity still has to be physically generated at the moment consumers require it.
Suppliers must forecast demand.
Generators must provide supply.
The transmission and distribution networks must have sufficient capacity.
Storage and interconnectors can move electricity through time and geography, but have physical limitations.
And the entire system must remain balanced continuously.
This is why our proposal separates the retail reform objective from the extraordinarily complicated mechanics of electricity generation and wholesale trading.
We are not proposing to abolish electricity markets.
We are asking a much simpler question:
How much of the price households currently pay per kWh genuinely needs to be recovered through that unit price?
Our reforms progressively remove costs where the answer is “it doesn’t.”
We will expand our economic modelling to include the GB electricity forward market.
Next we will examine:
6-month procurement costs
12-month procurement costs
24-month procurement costs
36-month procurement costs
We will also examine how the price of the same delivery period changes as it approaches.
That will allow us to stress-test the 15p ambition against the prices suppliers could actually have contracted for—not simply the wholesale price reported on the day electricity was generated.
Our proposal should survive that test.
And where it does not, we should understand why, quantify the risk and determine whether the tariff, supplier margin, procurement rules or Electricity Resilience Fund needs to respond.
15p/kWh is an objective to work towards through controlled reform. It is not an assumption that electricity will always cost less than 15p/kWh to procure.
What does the forward electricity market tell us about a 15p tariff?
Market data: 4 September 2026
Our proposal has a long-term ambition of reducing the standard domestic electricity unit rate towards 15p/kWh.
An important test of that ambition is not simply what electricity costs on the day it is generated, but what suppliers can contract to buy electricity for months and years into the future.
The Great Britain electricity market allows electricity to be traded in advance through forward and futures contracts.
The current market therefore gives us an indication today of what electricity for 2027 and 2028 is expected to cost.
The current GB electricity forward curve
The following are UK baseload seasonal forward prices at the close on 4 September 2026:
| Delivery period | Wholesale £/MWh | Wholesale p/kWh | 15p retail price | Difference |
| Winter 2026 | £145.83 | 14.58p | 15.00p | 0.42p |
| Summer 2027 | £99.03 | 9.90p | 15.00p | 5.10p |
| Winter 2027 | £99.87 | 9.99p | 15.00p | 5.01p |
| Summer 2028 | £69.99 | 7.00p | 15.00p | 8.00p |
| Winter 2028 | £78.55 | 7.86p | 15.00p | 7.15p |
Source: PEP/ICD UK Baseload seasonal forward market data, closing prices 4 September 2026.
The conversion is straightforward:
£100/MWh = 10p/kWh.
The final column is not supplier profit. It is simply the difference between the wholesale baseload contract and a hypothetical 15p/kWh retail price.
Supplier operating costs, losses, shaping, imbalance costs and the regulated supplier margin would still have to be funded from the appropriate allowances.
The immediate winter is the exception
Winter 2026 is currently extremely expensive.
At approximately 14.58p/kWh, there would be almost no room between the baseload wholesale contract and a 15p retail tariff.
But something interesting happens as we look further ahead.
Electricity for Summer 2027 is currently trading at approximately 9.90p/kWh.
Winter 2027 is approximately 9.99p/kWh.
Summer 2028 falls to approximately 7.00p/kWh, while Winter 2028 is approximately 7.86p/kWh.
The market is therefore not currently pricing today’s exceptionally high wholesale conditions indefinitely into the future.
The potential wholesale headroom
Another way of looking at the same figures is to ask how much of a 15p unit price remains after the baseload electricity has been purchased.
For every 1,000 kWh supplied:
| Delivery period | Wholesale cost | Revenue at 15p | Difference |
| Winter 2026 | £145.83 | £150.00 | £4.17 |
| Summer 2027 | £99.03 | £150.00 | £50.97 |
| Winter 2027 | £99.87 | £150.00 | £50.13 |
| Summer 2028 | £69.99 | £150.00 | £80.01 |
| Winter 2028 | £78.55 | £150.00 | £71.45 |
Again, these figures must not be described as supplier profit.
They represent the gross difference between the baseload forward price and the proposed retail unit rate before remaining legitimate supply costs.
Nevertheless, they demonstrate why looking beyond today’s wholesale price matters.
Winter 2026 also demonstrates the value of buying ahead
The current Winter 2026 price provides another important lesson.
On 4 March 2026, the same Winter 2026 seasonal contract closed at approximately:
£84.77/MWh — 8.48p/kWh.
By 4 June it had increased to:
£103.17/MWh — 10.32p/kWh.
By 4 August:
£117.26/MWh — 11.73p/kWh.
And on 4 September:
£145.83/MWh — 14.58p/kWh.
| Date purchased | Winter 2026 forward price | p/kWh | Difference to 15p |
| 4 March 2026 | £84.77/MWh | 8.48p | 6.52p |
| 4 June 2026 | £103.17/MWh | 10.32p | 4.68p |
| 4 August 2026 | £117.26/MWh | 11.73p | 3.27p |
| 4 September 2026 | £145.83/MWh | 14.58p | 0.42p |
This does not mean electricity automatically becomes more expensive simply because it is purchased closer to delivery.
Forward prices move because expectations about future supply, demand, gas prices, generation availability, weather and geopolitical risks change.
But it demonstrates the purpose of hedging.
A supplier that had secured part of its expected Winter 2026 requirement earlier would not necessarily be purchasing its entire winter requirement at September’s much higher price.
A diversified procurement strategy matters
A real supplier would not normally purchase its entire annual requirement through one seasonal contract on one particular day.
Electricity procurement can be layered over time.
For example, portions of expected demand could be secured 24 months ahead, 18 months ahead, 12 months ahead and six months ahead, with progressively smaller adjustments through monthly, day-ahead and intraday markets as actual demand becomes known.
The relevant question for our policy is therefore not:
“Is wholesale electricity always below 15p?”
Clearly it isn’t.
The better question is:
“Can a prudently managed procurement strategy normally acquire electricity sufficiently below the regulated retail price to fund the remaining legitimate costs of supply and a reasonable supplier margin?”
That is the test our modelling should apply.
15p was never intended to happen overnight
There is another important distinction in our proposal.
We are not proposing to reduce the existing electricity unit price to 15p overnight.
Our two-year roadmap progressively reforms the bill.
The early reductions come from changing what is recovered through the electricity unit price, rather than assuming the wholesale electricity market suddenly becomes cheaper.
Network costs currently embedded within the unit price are separated and recovered through the Network Access Charge.
Policy costs are removed from electricity bills.
VAT is permanently reduced.
Supplier costs and margins are subsequently reformed.
Only as those components are progressively removed does the consumer unit price move towards the longer-term 15p/kWh objective.
We have not yet fixed a wholesale allowance
Our proposal has also not yet specified that wholesale electricity must cost a particular number of pence within the 15p tariff.
That is deliberate.
The wholesale allowance should be determined from evidence about actual electricity procurement rather than an arbitrary number.
The forward market analysis is part of establishing what that number could sustainably be.
If electricity can be secured at 7p/kWh, the economics are very different from a period where it costs 14p.
The regulated system must be capable of dealing with both.
This is why the Electricity Resilience Fund exists
Winter 2026 provides almost a textbook example of why our proposed Electricity Resilience Fund (ERF) is necessary.
An electricity system cannot be designed on the assumption that wholesale markets will always behave normally.
Geopolitical events, gas shortages, extreme weather, major generation failures and other shocks can rapidly increase forward electricity prices.
Our proposal is therefore not:
15p regardless of what happens.
Instead, the objective is to create a system in which normal electricity costs can be sustainably recovered through a much lower retail unit rate while exceptional costs can be managed without permanently loading crisis premiums onto household electricity bills.
The ERF provides financial resilience against those exceptional events.
The ERF should not insure bad trading
There is an important safeguard.
If the ERF protects the national tariff against extraordinary wholesale conditions, suppliers should not be able to deliberately remain exposed to short-term markets and transfer the consequences of poor procurement decisions to the fund.
We therefore propose investigating minimum prudent hedging requirements for suppliers participating in the national tariff.
ERF support could be conditional upon suppliers demonstrating that they had followed those requirements.
The fund would insure the electricity system against extraordinary events.
It would not insure suppliers against reckless trading.
What the forward market currently tells us
The September 2026 forward curve does not prove that 15p/kWh is achievable.
But neither does today’s exceptionally expensive Winter 2026 contract prove that it is impossible.
Instead, it gives us something much more useful: a market-based test.
At the time of writing, the market values baseload electricity at approximately:
14.58p/kWh for Winter 2026
falling to:
9.90p/kWh for Summer 2027
9.99p/kWh for Winter 2027
7.00p/kWh for Summer 2028
and:
7.86p/kWh for Winter 2028.
Those prices suggest that, beyond the immediate wholesale shock, the market currently expects electricity to be available substantially below our proposed 15p retail price.
Our next task is to determine how much of that difference is required for the legitimate remaining costs of supplying electricity — and how much headroom remains for a reasonable supplier margin.
That analysis will help determine the appropriate wholesale allowance within the eventual national tariff.
The 15p target should be tested against the real market, not simply asserted.