Chemical products are integral to all clean energy technologies but UK producers are struggling to compete with lower energy prices overseas. Moving policy cost off the electricity bill would improve competitiveness and attract investment in growth and electrification. But moving this policy cost onto the gas bills would shutter businesses in the near-term, before they have the market conditions needed to electrify.
The UK’s Modern Industrial Strategy identifies high electricity cost as a key barrier to investment in the UK and commits to reducing that cost. Energy-intensive firms paid twice the European average in electricity costs last year, a fundamental challenge to the competitiveness of our energy intensive sectors and the attractiveness of the UK to foreign investment.
Within the UK, the electricity price that an industrial consumer faces is five times higher than the comparative gas price.[1] The electricity price can be broken down into three components:
- Wholesale price is linked to the market for natural gas because gas-fired generation typically sets the marginal power price. In Europe we face a higher gas price than our competitors in North America, the Middle East and Asia, which elevates our wholesale electricity price. We also pay the pass-through cost of carbon pricing in the power sector which manifests in the wholesale electricity price.
- Policy cost derives from public investment in renewable generation, e.g. levies which raise money to fund the Contracts for Difference scheme, Renewables Obligation, Feed in Tariffs and Capacity Market, all of which underpin renewables deployment. The Climate Change Levy, business energy tax, is also levied on the bill.
- Network cost relates to the development and maintenance of the electricity grid, which is being reinforced and expanded to manage more intermittent and less centralised generation.
Of the elements that Government can act upon, the policy cost and the network cost are the most obvious. In recognition of our disadvantage, the Government has already moved to introduce a new British Industry Competitiveness Scheme (BICS), alongside the existing British Industry Supercharger, that will cut policy cost to qualifying businesses. The Government has also announced an uplift to the Network Cost Compensation (NCC) scheme, which will further reduce the network cost faced by eligible businesses.
But these interventions only help a minority of firms that are struggling with high energy bills; the Supercharger and NCC scheme support just 30 chemical businesses and, whilst its anticipated that BICS will support ~7,000 businesses, that scheme will not arrive until 2027. Current policy initiatives do not go far or fast enough and many businesses will not survive until 2027.
All told the various levies and taxes on non-domestic electricity prices amount to £76/MWh in 2025-26.[2] [3]In the run up to Budget 2025, many have advocated for the rebalancing of policy cost away from electricity bills entirely, either onto the Exchequer or onto gas bills. From the perspective of the chemical sector, the rebalancing of policy cost onto gas bills must be avoided at all costs.
Whilst the role of gas in electricity generation is expected to decline as the UK shifts to clean energy sources, for now it continues to remain vital in the UK not only to heat most homes but as a source of heat for energy-intensive processes and a key raw material to make to produce essential building block chemicals for plastics, fertilizers, and other products.
Shifting policy costs onto gas prices would result in a 44% increase to industrial gas prices - a total cost to the sector of £935 million - putting those businesses currently reliant on gas for heat at an existential international disadvantage.2 3 The electricity price differential that has seized up investment would become a gas price differential with the same outcome. Meanwhile UK manufacturers would still struggle to switch to electricity because of the residual uncompetitive wholesale price.
Chemical products are integral to all clean energy technologies so our sector has a key role to play in the UK’s Clean Energy Superpower Mission. But UK producers are struggling to compete with industrialised nations that offer lower energy prices. Moving policy cost off the electricity bill would improve competitiveness and attract much needed investment in growth and electrification. However, any additional policy cost levied on the gas bills would likely shutter businesses in the near-term, before they have the market conditions needed to electrify.
[1] DESNZ international industrial energy prices, May 2025
[2] OBR economic and fiscal outlook, March 2025
[3] DUKES energy use statistics, 2024
