The government has been urged to back proposals to offer longer-term agreements with lower returns to existing nuclear plants and renewable generators to reduce energy bills by tens of billions of pounds.

The trade body Energy UK has backed the plan of granting new contracts that would replicate the Contracts for Difference (CfD) scheme.

CfD contracts offer generators a guaranteed ‘strike’ price – if generators sell power onto the wholesale market when above this price, they return the surplus to consumers.

Energy UK estimates that the proposal could reduce energy bills by up to £18 billion a year from next year.

This translates to a £150-£250 saving for a typical household, according to the analysis.

Adam Berman, Energy UK’s Deputy Director, said: “The current energy market does not allow customers to fully benefit from the cheapest form of electricity – domestically produced low carbon generation.

“Removing the link between gas and retail electricity prices will be complex and take time, but this solution provides a quick fix for up to 40% of our generation capacity.”