Energy Prices: Energy-intensive Industries

Commons Urgent Question

The following Answer to an Urgent Question was given in the House of Commons on Thursday 1 May.

“I relay my thoughts to the workers in my honourable friend’s constituency, for whom I know this is a worrying time. I thank my honourable friend for raising the issue. He is a tireless champion for workers and businesses in his constituency. We have spoken and will continue to speak regularly about these issues and the importance of the ceramics industry in his area in particular.

This Government recognise the challenges high energy prices pose to UK businesses. We know that the ceramics sector is particularly affected; my honourable friend has raised the issue in Parliament on other occasions. The Government are working closely with Ceramics UK and local Stoke MPs to work out how we can support the sector.

For energy-intensive industries overall, our clean power 2030 target is the key to long-term sustainable price reductions. Clean home-grown energy is the best way to protect bill payers and boost Britain’s energy independence. We are already bringing energy costs for UK industries closer into line with other major economies through the British industry supercharger. That will fully exempt eligible firms, including some but by no means all of those in the ceramics sector, from certain costs linked to renewable energy policies, particularly those exposed to the high cost of electricity.

Using more electricity and less fossil fuel is the future for UK businesses. The latest advice from the Climate Change Committee expects electricity to meet 61% of industrial energy demand by 2040, so we are developing options to enable businesses to do that.

We are already taking action. When my honourable friend raised this important issue in a Westminster Hall debate in March, I noted:

‘We are working on how to remove undeveloped, speculative programmes from the grid connection queue and prioritise others’.—[Official Report, Commons, 4/3/25; col. 109WH.]

Just last month, we announced pro-growth reforms to help unlock £40 million of mainly private investment a year in clean energy and infrastructure, so that so-called ‘zombie projects’ will no longer hold up the queue for connection to the electricity grid.

We recognise that we need to support a range of energy-intensive industries, including industries such as ceramics, that are essential to our UK economy and our missions, for example to build the 1.5 million homes and the clean energy infrastructure products in which this Government are already investing. Following years of economic chaos and instability under the previous Administration, this Government are implementing a modern industrial strategy that will drive growth and the creation of good high-quality jobs in communities across the UK.

I look forward to continuing to work with my honourable friend and other honourable Members from across the House. We are meeting next Wednesday and I hope to be able to progress things further at that stage.”

15:23:00

My Lords, the UK has the highest industrial electricity prices in the OECD. We have discussed this many times in your Lordships’ House. Our prices are 45 times more expensive than in the USA and seven times more expensive than in China. Without cheap energy we are deindustrialising through the back door. Just last week, on 1 May, the Times reported that: “Three in five British companies have said that ‘rising and unstable’ energy costs are undermining growth plans”. So will the Minister please listen to the advice of industry, and reconsider this accelerated plan to decarbonise the grid at any cost to prevent more British jobs being lost in our flagship energy-intensive industries?

My Lords, I of course recognise the challenge that high energy prices pose for UK businesses. I am very well aware that the Urgent Question in the Commons related to a ceramics company in the potteries, Moorcroft. Let me say at once that my thoughts are with all those workers affected, and I know that Ministers are working very hard with the company and the industry to talk through some of those issues. I say to the noble Lord that the structure we have in relation to energy prices is the same as the one his Government left when they left office last July. We know that the main reason why we have high energy prices is our reliance on international gas and oil markets, which related back to the shock to the system from Putin’s invasion of Ukraine. We believe as a Government that the faster we move to decarbonise, the more we can provide energy security and cheaper energy, and that this is the best way to go forward. If anything came from the previous Question about the advice of the Climate Change Committee, it is that we cannot afford to let go or slow down in relation to climate change. We do not have that luxury; we need to press on.

My Lords, our industrial energy prices are too high and our transition to net zero must not come at the cost of specific industrial sectors. The Minister has noted that the original Question in the Commons was in relation to our pottery industry. It is clear that the energy supercharger is helping, but what more can be done to make sure that it is helping all our industries? It is also no secret that the Government are looking at energy market reform in our domestic sector, so can the Minister say what action is being taken to help with industry’s energy costs? What thoughts have the Government had about setting up a permanent independent body to advise the Government on the complex matters involved in the energy market reform policy?

My Lords, the noble Lord is of course right to refer to the energy supercharger: £470 million is being contributed towards helping companies which are major energy users. Obviously, we look at the scheme and at whether any changes should be made, but as regards energy market reforms, we are certainly looking at a number of issues in relation to the electricity market. We are looking at issues to do with zonal pricing and the rebalancing of the cost of electricity and gas. But these decisions are not easy and there will be gainers and losers, so we have to take this very carefully. The ultimate answer to the noble Earl’s question is that we need to decarbonise as quickly as possible. That will give price stability and certainty to industry.

My Lords, I am chairman of Make UK, which represents 27,000 manufacturing businesses in the UK, which I think by mutual acclaim amount to between 10% and 15% of GDP. Our members are extremely worried because they face a 50% premium—at the absolute minimum—on the price of the electricity they have to pay compared to their competitors in Europe and elsewhere. The question to the Government is that industry prices are unregulated compared to consumer prices, and they are therefore much more open to the vagaries of the market. The Government have the industrial strategy, which, I hope, will be published in the next few weeks. Can the Minister reassure us that high energy prices and the uncompetitive nature that they provide for most of our members trying to export products and therefore grow the economy will be assisted in the industrial strategy?

My Lords, I am grateful to the noble Lord and thank him for the work he does on behalf of so many important industry companies. He will know that we are in discussion with organisations such as his own and many other business and industry interests. As he said, we hope to publish the industrial strategy within the next few weeks. I cannot give him any guarantees as to what will be in it, but I assure him that I understand the pressures on our industries, and we are considering those very carefully in government.

But, my Lords, the fundamental flaw in the pricing system introduced at the time of privatisation is that the average price of electricity was determined by the marginal price of the last kilowatt, which is normally produced by gas and, as the Minister rightly said, is therefore driven by international gas prices. That is not a law of physics or engineering but a political decision. Should we not be examining that to rebalance the pricing system to the benefit of industry and indeed consumers?

My Lords, the electricity market operates on the principle of marginal pricing, whereby the wholesale price of electricity is set by the last technology needed to meet overall demand. That is why gas tends to set the price for the market. We are of course looking at this as part of our REMA review that I have referred to. But the faster we decarbonise our energy and move towards clean power, the less gas will have the influence it does in the current system.

What lessons has the Minister’s department learned from looking at our competitors, particularly in Europe, which seems to manage this aspect of its energy markets rather better? What lessons have we learned from across the channel?

My Lords, we have to look at each country, and some subsidise business costs from the Exchequer. There is no easy way through here; one way or another, there are variations in what Governments do, but we have a very tough public financial situation bequeathed by the last Government, in the form of the black hole they left us, so our options are inevitably constrained. We are not complacent; that is why we have this review of our whole energy pricing structure, and we will look at these matters very carefully. I still maintain, and I think the noble Lord would agree, that the best way to energy security and stable prices is to go towards clean power as quickly as we can.

My Lords, the Minister was absolutely clear that these are not easy decisions, and I think we all understand that. But the high price of electricity affects not only industries but consumers, so they are decisions, however difficult, that have to be taken. We have been tremendously damaged by the system that we have at the moment, so can the Minister be a little more specific about when we will have the results of the REMA review and when we can change the current perverse system of pricing?

My Lords, I hesitate to answer the noble Baroness by saying “in due course”. Clearly, these matters are being discussed very fully in my department, and we want to reach a conclusion as quickly as possible, but I cannot give her a date.

My Lords, if the Minister is correct in his economic theory about gas and electricity prices—frankly, I am not sure that he is—why is the lower price of oil, which is now getting quite low, not bringing down the price of gas as well?

My Lords, it is because of marginal pricing, whereby gas is the most predominant, and it tends to set the price. As my noble friend said, this system has operated for many years, but we are looking at it very carefully.