The UK's industrial energy costs are among the highest globally, a stark reality impacting competitiveness, investment, and even national security. Businesses in Britain pay a significant premium – 46% higher than the IEA average and over four times more than in the US. While the UK has made strides in renewables, with 2024 marking the first year renewables outpaced fossil fuels, industrial energy costs remain stubbornly high.
Recent government measures, like reducing green levies for energy-intensive industries, claim to offer relief. However, as Sarah Spencer from Balance Power argues, these are short-term fixes that miss the fundamental problem and risk failing the sector long-term. A lasting solution requires a strategic shift, putting businesses in control by embracing renewables, particularly solar power paired with battery energy storage systems (BESS).
Manufacturers, understandably burdened by high costs, have advocated for cutting green levies. Industry body Make UK recently argued these levies hinder growth and contribute to de-industrialisation risks. While the desire to lower costs is valid, are levy cuts the right approach?
Short-term cost reductions might occur, especially alongside proposed increases in grid connection fee discounts. Yet, the savings are projected to be relatively minor for some sectors – perhaps only £15m a year for steel, for instance. Furthermore, how these cuts will be funded remains vague, relying on unspecified 'reforms to the energy system'.
Crucially, such measures distract from the root cause of the UK's high industrial energy prices.
The defining factor driving UK industrial energy prices is the grid's heavy reliance on wholesale gas markets. Gas underpins the UK grid, filling supply gaps, but it also critically sets the price for the entire electricity market via a 'marginal pricing system'.
Under this system, the cost of the last, most expensive unit needed to meet demand (often gas) determines the price for all electricity, even cheaper renewables and nuclear. Consequently, volatile wholesale gas costs account for around 39% of the average UK industrial energy bill – far exceeding network costs (23%) or VAT (20%). This exposure has been amplified by geopolitical events like the war in Ukraine.
While common across Europe, Britain's reliance on gas for price setting is particularly high compared to countries like France, where nuclear power dominates. The solution, therefore, isn't tweaking levies designed to fund the transition away from gas, but accelerating that very transition.
A robust, renewables-first energy system, with solar and BESS at its core, offers the genuine, long-term fix. Solar is cost-effective, scalable, and rapidly deployable. Paired with BESS, excess solar generation can be stored and dispatched during peak demand or low generation periods, enhancing reliability and efficiency.
Critically, these solutions enable decentralised, behind-the-meter (BTM) generation. Businesses installing on-site solar arrays and batteries can generate, store, and consume their own clean power, significantly reducing their dependence on the grid and the volatile wholesale market. This offers:
Solar projects, particularly rooftop installations, can be delivered in months, offering near-term relief alongside long-term transformation. BESS adds resilience and allows businesses to contribute to wider grid flexibility. This contrasts sharply with fossil fuel dependency, which locks the UK into global volatility and diminishing infrastructure returns.
While BTM solar might only account for a fraction of national generation, its impact is broader. Every BTM system reduces grid pressure, eases connection queues, and improves overall resilience, fostering a more stable investment environment for all renewables.
Instead of short-term levy adjustments, a strategic, long-term approach focused on solar and BESS is needed. This should include:
The UK stands at a crossroads. One path offers illusory short-term savings while perpetuating reliance on a costly, polluting system. The other embraces innovation, building a modern, renewable-powered industrial base driven by solar and battery technology. By choosing the latter, the UK can create an energy system that is cleaner, cheaper, more resilient, and built to last – securing the future of British industry.