Ministers are considering a commitment to cut soaring industrial energy prices for British companies to the same level enjoyed by competitors in France and Germany as part of its industrial strategy.
Sky News understands proposals to make energy prices more competitive are at the heart of final discussions between the Department for Business and Trade and the Treasury ahead of the publication of its industrial strategy on Monday.
Industrial electricity prices in the UK are the highest in the G7 and 46% above the median for the 31 member states of the International Energy Agency, which account for 75% of global demand.
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In 2023, British businesses paid £258 per megawatt-hour for electricity compared to £178 in France and £177 in Germany. Matching those prices will require a reduction of around 27% at a cost of several billion pounds.
Earlier this month, automotive giant Nissan said UK energy prices make its Sunderland plant its most expensive in the world.
Business secretary Jonathan Reynolds is understood to be sympathetic to business concerns, and chancellor Rachel Reeves told the CBI’s annual dinner the issue of energy prices “is a question we know we need to answer”.
Extending relief
While around 350 companies in energy-intensive industries, including steel, ceramics and cement, enjoy some relief from prices through the energy supercharger scheme, which refunds 60% of network charges and is expected to rise to 90%, there is currently no support for manufacturers.
Sky News understands ministers are considering introducing a similar scheme to support the 200,000 manufacturing businesses in the UK.
Cutting network costs entirely could save more than 20% from electricity prices.
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The mechanism for delivering support is expected to require consultation before being introduced to ensure only businesses for whom energy is a central cost would benefit. This could be based on the proportion of outgoings spent on energy bills.
It is not clear how the scheme would be funded, but the existing industrial supercharger is paid for by a levy on energy suppliers that is ultimately passed on to customers.
A central demand
Bringing down prices, particularly for electricity, has been the central demand of business and industry groups, with Make UK warning high prices are rendering businesses uncompetitive and risk “deindustrialising” the UK.
The primary driver of high electricity costs in the UK is wholesale gas, which both underpins the grid and sets the price in the market, even in periods when renewables provide the majority of supply.
Why are costs so high?
Wholesale prices account for around 39% of bills, with operating costs and network charges – the cost of using and maintaining the grid – making up another 25%, and VAT 20%.
Business groups, including the manufacturers group Make UK, have called for a reduction in those additional charges, as well as the so-called policy costs that make up the final 16% of bills.
These are made up of levies and charges introduced by successive governments to encourage and underwrite the construction of renewable sources of power.
Make UK estimate that shifting policy costs into general taxation would cost around £3.8bn, but pay for itself over time in increased growth.
Government sources confirmed that energy prices are a central issue that the industrial strategy will address, but said no final policy decisions have been agreed.
The industrial strategy, which is delayed from its scheduled publication earlier this month, will set out the government’s plans to support eight sectors identified as having high-growth potential, including advanced manufacturing, life sciences, defence and creative industries.
