Britain can cut sky-high electricity prices for Scunthorpe Steelworks and Hull Chemical Plants – without passing the costs onto households or small businesses, new independent analysis by FTI Consulting has revealed.
The report finds introducing zonal pricing – a smarter system where electricity is charged based on regional demand and supply – could slash industrial electricity in the region by almost £20 million.
This would create a lifeline for vital steel and chemical industries in the region, which currently pay some of the highest electricity costs in the world, threatening jobs, investment and growth.
The news comes as Make UK – the manufacturing lobby group – once again highlights the costs of energy to businesses.
The current energy subsidy for manufacturers – the ‘British Industry Supercharger’ – has worked well for around 370 energy-intensive businesses, but is funded by adding costs to everyone else’s bills. This levy currently adds up to £410 million onto consumer bills, and is expected to become 2.5 times more expensive by the 2030s.
Zonal pricing would make the energy system more efficient, saving manufacturers that don’t receive the Supercharger £12-16 megawatt-hours (MWh) on average by 2030, with businesses in the North of Scotland saving up to £29 per megawatt-hour.
This could save individual businesses millions each year, with thousands of energy-intensive companies not covered by the Supercharger – such as ceramics, auto and tech sectors – benefitting instantly.
Further examples of potential annual savings for businesses:
- A glassworks in Scotland could cut costs by up to £19 million.
- A paper mill in North Wales could save over £14.5 million.
- A medium-sized ceramics plant in Stoke could save up to £630,000, while a car manufacturer in the North East could see savings of £5-6 million.
The report was commissioned by Octopus Energy. The company is urging the government to adopt zonal pricing to reduce costs at the source, instead of shifting them unfairly onto consumer bills.
It comes as the House of Lords Industry and Regulator Committee joins Ofgem, NESO, Citizens Advice and other energy experts who have come out in favour of zonal pricing.
Greg Jackson, CEO and Founder of Octopus Energy Group, said: “Britain’s manufacturers are being crushed by electricity costs – among the highest in the world.
“We’ve now got clear evidence that zonal pricing will cut these costs at the source, without pushing the burden onto households.
“Instead of robbing Peter to pay Paul, zonal pricing can slash bills for heavy industry and households, whilst accelerating our path to clean energy.”
Jason Mann, Senior Managing Director at FTI Consulting, said: “Our work for Octopus on zonal pricing (and previously for Ofgem) shows that zonal pricing could materially benefit all British consumers. This is true for households as well as larger industrial consumers.
“Our most recent study indicates that, with minor changes to the special arrangements that currently apply, all of the country’s very largest manufacturing plants could also benefit from lower electricity prices were zonal pricing to be implemented.”
Matthew Evans, Chief Operation Officer, techUK, said: “The UK’s digital economy cannot remain globally competitive while data centres – core to AI, cloud computing, and high-performance technologies – face some of the highest industrial energy costs in the world.
“Unlike other energy-intensive sectors, data centres bear 100% of network, policy, and balancing charges despite leading in renewable energy investment.
“If we want Britain to be a tech maker, not just a tech taker, we need urgent reform in energy pricing structures, including zonal pricing, that recognise the strategic value of digital infrastructure and remove cost-based barriers to growth.”