Why are UK industrial electricity prices so high - and what can be done about it?

Britain has the highest concern energy prices successful the G7, a outgo businesses accidental makes it intolerable to vie internationally and risks "deindustrialising" the UK.

Electricity prices are driven by wholesale substance prices, peculiarly earthy gas, but see taxes and "policy costs" that concern groups, including Make UK and the CBI, privation the authorities to cut.

Sky News understands the contented is simply a "live discussion" within authorities arsenic ministers finalise the government's concern strategy, owed to beryllium published adjacent week.

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So what are the options, and wherefore are prices truthful precocious successful the archetypal place?

How overmuch does UK concern wage for electricity?

Industrial energy prices successful 2023 were 46% higher than the mean of the 32 members of the International Energy Agency, a radical that includes EU and G7 nations that, betwixt them, relationship for 75% of planetary demand.

UK businesses paid an mean of £258 per megawatt-hour, according to IEA information - higher than Italy (£218), France (£178) and Germany (£177), and much than 4 times the £65 paid connected mean successful the USA.

While wholesale prices person been driven up successful the past 5 years by outer factors including post-pandemic request and the Ukraine war, this is not a blip - UK prices person been consistently supra the IEA mean for decades.

Why are prices truthful high?

The main determinant is vulnerability to wholesale gas markets. Gas underpins the UK grid, reliably filling the gaps renewables and atomic sources cannot fill. Crucially, state besides sets the terms successful the energy marketplace adjacent erstwhile it is not the superior root of energy.

The UK marketplace uses a "marginal pricing system", successful which the terms is acceptable by the last, and frankincense astir expensive, portion of powerfulness required to conscionable request astatine immoderate 1 time.

That means that portion renewable sources, initially offered astatine a cheaper price, whitethorn supply the bulk of powerfulness successful a fixed period, the terms for each sources is acceptable by gas-fired powerfulness stations providing the equilibrium of supply.

Industrial energy bills are little successful markets that are little exposed to gas. In France, state sets the terms little than 10% of the clip due to the fact that its fleet of atomic powerfulness stations underpin supply.

What makes up energy bills?

The biggest azygous constituent of energy prices is wholesale state costs, which marque up 39% of the bill, according to concern supplier SEFE.

The adjacent largest constituent is "network costs", charges imposed for using, maintaining and expanding the grid, which relationship for 23%. Operating costs are 2%, with VAT adding a further 20%.

The remaining 16% of energy bills is made up of "policy costs", levies and payments introduced implicit the past 2 decades to subsidise the operation of renewable powerfulness capacity, chiefly upwind power.

Increasing renewable proviso and retention to trim vulnerability has been the semipermanent solution favoured by successive governments. Sir Keir Starmer's medication has a people of shifting to a "clean power" grid by 2030 and achieving net-zero c emissions by 2050, a people Kemi Badenoch describes arsenic "impossible".

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Some energy-intensive industries (EII), specified arsenic chemicals, steel, and cement, already person support, with a 60% alleviation connected web charges and a simplification of astir 10% from the British Industry Supercharger fund, which the authorities is considering increasing.

What does concern want?

Business groups are calling for these argumentation costs to beryllium lifted and shifted into wide taxation, calculating that a 15% simplification successful prices would springiness them a accidental of competing much equitably.

Make UK accidental cutting argumentation costs would chopped 15% from bills, and is besides proposing a "contract for difference" for manufacturers' electricity, a exemplary borrowed from the renewables market.

Under the plan, the authorities would warrant a "strike price" for energy 10% little than the wholesale price. When prices are higher, the payer would refund business, and erstwhile they are lower, manufacture would wage backmost the difference.

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Make UK estimation the outgo to the exchequer of £3.8bn. They judge it volition beryllium cost-neutral courtesy of accrued growth. The alternative, they say, is an uncompetitive manufacturing assemblage doomed to decline.

"We request to spot the authorities region those costs successful the concern strategy," says Make UK main enforcement Stephen Phipson.

"We judge it volition beryllium cost-neutral due to the fact that of the payment to the system of retaining manufacturing successful this country. If we don't spot it happen, we volition hazard deindustrialising the United Kingdom."

A authorities spokesperson said: "Through our sprint to cleanable power, we volition get disconnected the rollercoaster of fossil substance markets - protecting concern and household finances with clean, homegrown vigor that we control."