Firms stumped up extra £29bn for ‘astronomical’ energy costs
British industry has had to fork out an additional £29bn to fund rising energy costs over the past four years, a fresh analysis has shown, adding further weight to calls for government bring down energy prices for British firms when it publishes its industrial strategy.
According to the Energy and Climate Intelligence Unit (ECIU), firms’ gas costs doubled from their pre-crisis average, despite demand falling by over 10 per cent, while their electricity costs are 60 per cent higher than before the supply shock.
The UK’s energy intensive iron and steel industry was found to be especially badly hit, with the average plant’s energy bill up 80 per cent since the energy shock, which dates back to 2021 but went into overdrive at the onset of Russia’s invasion of Ukraine in early 2022.
The sharp jump represents a £1.8bn extra hit to the moribund sector, which has struggled to stay afloat without hefty taxpayer handouts or being brought into de facto state ownership.
Jess Ralston, Energy Analyst at ECIU, said: “The UK has been particularly badly hit by the gas crisis because gas sets the price for electricity generation 97 per cent of the time.
“Just in the same way that households saw their energy bills shoot up, industry has been facing astronomical increases in energy costs due to the high price of gas.”
The findings bring into sharp relief the extent to which the price shock has been eating into firms’ bottom lines and add further momentum to recent calls from lawmakers and industry for the imminent industrial strategy to include measures to bring prices down.
The Starmer administration is poised to publish the strategy – the UK’s first in eight years – next week, with energy prices among the 12 “complex issues” ministers have set out to tackle.
The cross-party Business and Trade Committee identified high electricity prices as being responsible for “deterring investment and hurting the ability of UK industries to compete internationally” in a paper published earlier this month.
Meanwhile the boss of the CBI, Britain’s largest business lobby, called punitive energy costs an “anchor on [Britain’s] ambition” in a recent speech in which she called ministers to provide a “serious” plan from ministers to address the issue.
Rain Newton-Smith proposed the government remove net-zero policy costs that are currently added to the bills of businesses, citing CBI research that found UK firms pay four times more for their energy than equivalent businesses in the US and Canada.
Responding to the ECIU paper, industry minister Sarah Jones said: “These findings show the necessity of our clean power mission, getting us off the rollercoaster of fossil fuel markets to protect business and household finances with clean, homegrown energy we control.
“We recognise energy costs for UK industries have spiralled on the back of rising gas prices, so we are bringing them closer in line with other major economies through the British Industry Supercharger – saving businesses £5 billion over the next ten years.”