The government is planning to shift generators of renewable and nuclear electricity to contracts with lower prices to reduce costs the Prim Liz Truss, Minister Liz Truss has said.
"Renewable and nuclear generators will move on to contracts for difference, to end the situation where electricity prices are set by the marginal price of gas," Truss stated to the Parliament.
The cost for these companies is typically determined by the largest generator.
It is currently extremely costly gas.
Moving renewable and nuclear generators to contracts with lower prices "will mean that generators are receiving a fair price reflecting their cost of production, further bringing down the cost of this intervention," Truss said.
The government will request nuclear and renewable generators to sign new 10 - or 15-year contracts at fixed costs that are significantly lower than the current rate Sources who are familiar with the discussions tell.
Liz Truss says she won't propose a tax on windfalls on energy firms, but she'll have to tackle issues with their enormous profits.
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The market for energy consultant Cornwall Insight estimates energy prices are likely to be greater than PS40bn more due to the fact that certain electricity generators are paid according to the massively overinflated gas prices.
This is an especially urgent issue given that the government plans to invest tens of billions of pounds of taxpayer funds to help pay for energy costs.
The fact that renewable energy companies are paying less than market prices for gas will result in the reduction of revenue to them. At the very least in the short time.
However, RenewableUK is the trade body that represents the majority of wind power firms in that group, has embraced this concept in the spirit of.
"We're keen to work collaboratively with the government" regarding the issue RenewableUK's chief executive Dan McGrail said.
"It makes no sense to allow the exorbitantly expensive cost of gas to set the price for the whole of the electricity market", the minister said.
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RenewableUK includes the majority of the largest renewable companies within the UK including Orsted, Scottish Power, SSE, RWE and EDF.
It also confirms that its members have been involved in an "series of discussions" with the government regarding the issue , and claims it will wait for government officials to "take a position".
Then, why would they be willing to accept this massive loss to their profits?
RenewableUK claims that it's because the companies realize that it's unfair for consumers to have to pay these expensive prices during a time of national turmoil.
The people who have been involved claim they are being offered a very generous long-term cost to cover the short-term loss of profit.
Shadow secretary for climate change Ed Miliband told BBC Radio 4's Today program on Thursday morning that long-term fixed-price contracts could end up making massive profits for electric businesses for the foreseeable future.
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"This is a suggestion by (energy trade group for industry) Energy UK, and let's get the proposal: It would guarantee huge windfall earnings for electricity generators.
"Let me tell you the reasons behind this: What Energy UK have said is we'll be willing to accept slightly lower rates today, so that we can enjoy much higher prices in the next 15 years.
"This is a disastrous offer for British people, and a horrible deal for those who pay bills.
"It is better to do this in the event of these windfalls that are unexpected and they are there - the best choice, the right choice is not to make an unsound deal with these companies instead, you should apply an income tax on windfalls.
Liz Truss may be ideologically against windfall taxation, but allowing private firms billions of pounds of profit from government is an issue for politicians.
The businesses are aware that if there isn't a solution identified, she may decide to commit suicide. will have to keep her head down and impose a tax. If she decides to do so, she could take the billions of dollars of profits that firms have already made.
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