Industrial Electricity Prices

Over the five years through 2024-25, the price of electricity paid by industrial users in the UK is forecast to grow at a compound annual rate of 13.3%. Although electricity prices are quite volatile, the general trend since the turn of the century has been one of increasing prices.

The industrial price of electricity is determined by supply and demand. Other than input prices, factors that may influence the supply of electricity include the capacity of power plants, their current technical condition and planned overhauls or unplanned outages. On the demand side, changes in the state of the UK economy as well as energy demand in other parts of the world affects prices. However, changes in the spot price of electricity, which is entirely influenced by supply and demand, do not necessarily fully filter through to the price paid by industrial businesses.

The primary driver of general energy prices is changes in input prices, namely gas which generated 39.9% of total electricity in the United Kingdom in 2021, according to the latest Digest of UK Energy Statistics from BEIS. Following tumbling oil prices and the glut of gas in the UK market, industrial electricity prices contracted slightly in 2016 as wholesale electricity prices came down. The low value of the pound following the electoral decision to leave the European Union contributed to rising wholesale electricity prices due to the relative openness of the electricity generation industry. Oil and gas prices trended upwards in 2018 due to the supply cut agreed by major world oil producers which contributed to rising prices. Overall, the UK government environmental policies are anticipated to lead to inflationary pressure on electricity prices.

During the COVID-19 pandemic, demand for electricity dropped initially, as many economic activities were reduced due to government restrictions, leading to a fall in prices. However, since 2021, a shortage of natural gas has seen prices rise, which has been passed on in wholesale prices. This affect is likely to have taken place from the second half of 2020-21 and caused a significant rise in prices over 2021-22. Gas price rises were exacerbated by the Russian invasion of Ukraine which begun in February 2022. Global gas prices reached a record peak in August 2022 but has been dropping since. As a result, electricity prices are expected to drop in the current year, reaching 16 pence per kWh.