High industrial energy prices are frequently cited as a problem for the UK economy, and are likely to become more so due to global oil and gas price rises following the US and Israel's invasion of Iran.

This debate is primarily about electricity prices. Industrial gas prices in Britain are not especially high by international standards, and industries spend much more on electricity than on gas.

Although Britain has not had many energy-intensive businesses for several decades, high industrial electricity prices pose problems for many firms, and may also hold back industrial and tech development in future. This note looks at how high British electricity prices are, and what the options are for reducing them.

The most frequently cited statistics suggest that the UK had the highest industrial electricity prices among International Energy Agency countries in 2024, above Ireland and Switzerland.

As chart 1 shows, the UK’s status as an outlier on electricity prices is a recent development, which has only become obvious since the 2022 energy crisis. While other European countries, such as Germany, France and Spain, saw industrial electricity prices level off and reduce after a spike in 2022 and 2023, the UK has seen a more pronounced spike which has been slower to reduce.

This reflects several factors, including:

• the Great British electricity market relying more often on gas as the marginal unit of electricity, making it more exposed to high gas prices
• Britain being less integrated into the European electricity market and benefitting less from cheaper power in neighbouring countries
• increased fixed costs being added to non-domestic electricity bills, including levies to fund subsidies for early renewables and the increased costs of investing in and balancing the electricity grid.

Chart 2 looks at the increase in industrial energy prices in Britain in more detail, indexing them both to their level in the year 2000. Industrial gas prices have increased by nearly ten times in the last 25 years, with electricity prices moving roughly in tandem with gas prices. Prices across the economy, by contrast, have not even doubled over the same period.

There are two main periods where prices have increased since 2000. The first was a sustained rise in gas prices from 2005 to 2009, which also drove up electricity prices. The second was the rise in gas prices from 2021 onwards, culminating in the 2022 energy crisis. Gas prices and electricity prices have tended to move in tandem because gas plays a crucial role in setting the cost of electricity in Britain.

The UK does not have a large base of energy-intensive businesses, but this is a longstanding rather than recent trend. UK manufacturing has been in decline as a share of GDP and employment since at least the 1980s. Most of the degradation of Britain’s energy-intensive manufacturing base dates from the 2000s - it was not a result of net zero policies or the more recent energy crisis.

However, high electricity costs do have serious impacts on specific parts of the economy, and there is good reason to think electricity costs may be more important for the UK economy in future. The growing importance of data centres - which play an important role in Britain’s core strengths in tech, finance and professional services - will require more electricity. The renewed emphasis on national security and defence spending may mean more domestic energy-intensive industries in key sectors. And the industrial strategy lists advanced manufacturing as one of its eight priority sectors, while also prioritising foundational industries, such as iron and steel manufacturing, which support the UK’s industrial base.

Based on ONS statistics, most industries in the UK are not especially energy-intensive. However, some specific industries have very high electricity costs relative to their turnover, and these can have a big impact on their competitiveness and viability. 

The chart below shows all the industries whose electricity costs are at least 1% of their total output, with their electricity use on the x-axis and share of the UK’s total gross value added (GVA) on the y-axis. These industries account for just under 25% of the UK’s total GVA - implying that most industries in the UK spend less than 1% on electricity.

While most parts of the UK economy are not especially energy-intensive, there are some important manufacturing subsectors, and larger service sectors, that are sensitive to changes in electricity prices.

The most electricity-intensive industries include water supply, along with some specific production industries. These include: fertiliser and inorganic chemicals; glass and ceramics; petrochemicals; paper; and basic metals. These industries are relatively small in terms of their GVA, but can play an important role in local economies and UK support chains. The ONS notes that some of these manufacturing subsectors have lost around 25% of their output since the 2022 energy crisis, suggesting they are very vulnerable to high energy prices.

Alongside these specific manufacturing sectors, there are some larger service sectors that also face high electricity costs. These include accommodation, pubs, cafes and restaurants and retail, all of which have significant electricity costs. These are much larger industries with many more businesses and employees, but are clearly also exposed to high electricity prices. These industries have not typically been the focus of efforts to lower non-domestic electricity bills, and they may merit more attention from the government.

Although the headline statistics point to a very high cost of industrial electricity in Britain, many businesses will not pay this price. There is not a single price that businesses pay for electricity in Britain - there is no price cap, as there is for households, that we can use for comparisons over time. Businesses negotiate their own energy contracts, and how successfully they do this has a huge bearing on how much they pay.

We can see this even in the high level data, by breaking down between different types of business. Manufacturing businesses generally pay less for electricity (and gas, to a lesser extent) than other types of business. This may reflect the fact that manufacturing businesses are typically larger and use more energy, and so have more incentive and ability to reduce their energy costs.

Among manufacturers, there is a big variation between small and large energy users. Extra large energy users paid around 12p/kWh for electricity in 2025, while small users paid over 25p. This is a huge variation which is not accounted for in the headline statistics.

This difference likely reflects several factors:

• Larger businesses having more capability and market power to bargain effectively on electricity prices and use energy flexibly.
• Smaller manufacturers being tied in to less advantageous and sometimes longer term contracts which can lock in higher (or lower) prices.
• Targeted support given to some energy-intensive manufacturers.

Great Britain’s industrial electricity prices are often compared to France and Germany, both of which have lower prices for industrial users. However, France and Germany have very different models for achieving this.

France has cheaper electricity across its system, partly because it relies little on gas-fired power. France invested heavily in nuclear power in the 1980s and its nuclear fleet, along with hydro, wind and solar power, which helps to keep electricity prices lower than in Germany and Britain (although prices did rise in France during the energy crisis, in part reflecting integration with the European market). France’s nationalised energy system also makes price comparisons more challenging.

Germany, by contrast, has a more similar electricity market to Britain, but it artificially keeps bills for industrial users lower than domestic users through a system of cross-subsidies.

Between 2008 and 2023, Germany’s domestic electricity bills were on average 2.8 times higher than bills for very large industrial users, while this ratio averaged 2.5 in France. In Britain, the ratio was just 1.6, suggesting that very large industrial users get a lower discount below domestic customers than in France and Germany.

If the UK wanted to move closer to France and Germany on industrial energy prices, it may need to do so either at the expense of domestic billpayers or taxpayers.

There are no easy fixes for reducing the underlying cost of electricity

The UK government is aiming to reduce the cost of electricity by investing in renewable energy and upgrading the energy grid. Energy bills in Britain have risen in large part recently due to an increase in gas prices, which still play a big role in setting costs around the electricity system. The current crisis in oil and gas supply from the Persian Gulf may once again raise these prices further.

Although there is a strong case that more renewables will make electricity prices more predictable, and perhaps lower, the cost of offshore wind, the largest source of renewable energy in Britain, has risen. The AR7 auction had a strike price around £91 per MWh. Meanwhile the cost of upgrading and balancing the electricity grid are also adding to electricity costs.

The UK government also needs to look to other policy levers to reduce the underlying cost of electricity, such as reducing the cost of capital for renewables projects or spreading the cost of grid investment over time. Under current market conditions, there are no easy fixes for reducing the underlying cost of electricity in Britain.

However, there are some more specific actions the UK government could take to reduce industrial energy bills. None of these are straightforward, and involve significant trade offs, but they are worth considering.

1. Help businesses manage their energy costs more effectively

The gap between what large manufacturing businesses pay for electricity and what the typical business pays is around 13p per kWh. Reducing all business costs to this level would roughly halve the cost of electricity for businesses, bringing it below the level of Germany, France and the International Energy Agency median.

While some of the lower costs for very large electricity users come from specific subsidies, such as support for around 500 of the most energy-intensive businesses, these subsidies do not explain the whole difference. Part of the savings made by larger businesses is a result of their size and ability to manage energy bills more effectively.

There are major opportunities for businesses to lower their energy bills below peak rates, including:

• investing their own electricity generation and storage, such as solar and batteries
• negotiating better value energy contracts with suppliers, such as power purchasing agreements (PPAs)
• using the right tariffs for their business, which will often be time-of-use tariffs that vary over time
• using energy more flexibly, so they pay off-peak rates

Designing government policy to achieve this is more challenging. Options for government could include:

• providing energy advice to smaller businesses to manage their energy costs more effectively. Providing more systematic advice and tools to minimise energy costs could significantly lower energy costs for many companies. However, reaching small businesses with interventions like this is extremely challenging, which may limit the impact of this policy.
• providing grants or low-cost loans to businesses to support investment in energy assets. For many companies, especially manufacturing businesses with large premises, investing in solar panels will be a cost-effective measure to reduce electricity bills. Investing in batteries and other systems which enable businesses to save via flexibility could also be worthwhile, as would cost-effective energy efficiency measures.
• encouraging businesses to pool energy purchasing or use energy service companies (ESCOs), so that they can buy energy more effectively. Measures to encourage this might include small grants or tax breaks to encourage the use of energy services.

2. The German model: subsidise industrial energy costs

Alternatively, the UK government could consider subsidising non-domestic energy bills more highly. This is the model used in Germany (and France to a lesser extent), where domestic electricity bills are high relative to industrial bills.

The government already relieves some of these costs for the most energy-intensive businesses via a policy now known as the British Industry Supercharger, and has recently strengthened this support. The UK government already offers support to around 500 of the most energy-intensive industries. This has been progressively expanded by successive governments, and from 2026 will rebate many levies and 90% of network costs from bills. This scheme is estimated to cost around £420 million per year - which is added to other energy bills - and reduces electricity costs by around 3p-4p per kWh for industry on average. According to the government’s own analysis, a British industry in receipt of this support will pay £86 per MWh of electricity from 2026, compared to £69 in France and £60 in Germany.

However, the threshold for this support is quite high - businesses must prove that they’re in an industry with electricity intensity over 7% and trade intensity over 4%, as well as that their own electricity costs exceed 20% of their GVA.

This excludes many manufacturing businesses, and also means there is no support available for the much larger group of hospitality and retail businesses that face high electricity costs.The UK government is also preparing a new scheme, the British Industrial Competitiveness Scheme (BICS), which aims to cut bills by up to 25% (up to £40 per MWh)  for around 7,000 firms identified as high priorities in the industrial strategy. This represents a significant broadening of the support available to key industries. Make UK has estimated that it would cost around £1 billion a year.

If the UK government wanted to go further still, it could consider extending support to a wider range of businesses, such as those in the hospitality sector. This would be expensive, and the cost would have to be recovered either from general taxation or from domestic energy bills. 

However, this would impose high costs on either taxpayers or on other energy users. For example, the cost of the Renewables Obligation levy on non-domestic customers is currently just over £5 billion per year, which would be a very large commitment for the Treasury to make. Moving costs from electricity to gas bills is also challenging for non-domestic bills, because businesses use much less gas relative to households. Any rebalancing from electricity to gas bills would either greatly raise non-domestic gas costs or raise household bills.

Instead of targeting specific levies for all businesses, the government might wish to consider expanding support to all businesses within more energy intensive sectors.

As the table below shows, broadening this support gets expensive quite quickly. Providing a 50% discount on electricity bills for all sectors spending more than 3% of their output on electricity would cost around £1.9 billion a year, while expanding this to sectors spending over 2% on electricity would cost around £5.6 billion per year.

The British Industry Supercharger is currently funded by a levy on other business and household bills, adding around £5 to £7 to a typical household bill and £1.70 to £2 per MWh to non-eligible business bills. If the British Industrial Competitiveness Scheme is funded in the same way, this cost would rise significantly. Make UK has called for this support to be funded from taxation, not energy bills. There is a risk that broadening subsidies to more businesses and sectors will further raise costs for businesses that do not receive support, many of whom still face high energy costs. The UK government should approach expanded subsidies with caution.

There are no easy fixes for Britain’s high industrial electricity bills at the government level, but there are actions individual firms can take to greatly reduce their energy bills. Many larger businesses - especially manufacturers - pay far below the headline rate, due to a combination of subsidies and smart use of energy. Encouraging more businesses - including those in energy-intensive parts of the service sector - to manage their energy more effectively, and invest in their own electricity generation, could reduce costs for many businesses.

The UK government can also consider broadening and deepening subsidies on industrial electricity bills. The government is already expanding the support offered to energy-intensive companies under the British Industry Supercharger, while the new British Industrial Competitiveness Scheme will open up support to a much larger group of key industries. 

The case for going further than this is not clear. Subsidies to industrial electricity users are expensive, with costs falling either on the taxpayer or other bill payers. It is harder to justify these subsidies outside priority sectors, and to those that are not exposed to international competition. Ultimately, given the high cost of subsidy and the relatively small number of energy intensive industries left in the UK, support for industrial electricity bills should remain targeted at businesses most in need of help.