New Industrial Strategy Signals Major Changes for Energy-Intensive Businesses

Last month marked a pivotal moment for British industry as the UK government unveiled a comprehensive 10-year Industrial Strategy. This ambitious plan is designed to reposition Britain as a leading global business destination, directly addressing two of the most significant barriers to business investment: elevated electricity costs and protracted grid connection waiting times.

Recent data from the Office for National Statistics highlights the urgency of this strategy, showing that energy-intensive companies in the UK faced the highest electricity costs among all International Energy Agency (IEA) member countries. This, combined with the persistent challenge of lengthy grid connection queues, presents considerable obstacles to the nation's vital energy transition.

Reshaping the Business Landscape

In response to these critical challenges, the government has set forth an ambitious action plan aimed at reshaping the business environment and bolstering Britain's industrial competitiveness.

The strategy strategically targets eight sectors deemed crucial for the UK's future prosperity: advanced manufacturing, clean energy industries, creative industries, defence, digital and technologies, financial services, life sciences, and professional and business services.

The key pillars of the strategy are outlined below.

Reducing Electricity Costs for Businesses

A cornerstone of the new strategy is the introduction of a British Industrial Competitiveness Scheme, set to commence between 2027 and 2030. This initiative is projected to deliver substantial reductions in electricity costs for thousands of businesses, estimated at approximately £35-40/MWh.

This will be achieved by exempting eligible businesses from paying the costs associated with the Renewables Obligation, Feed-In Tariffs, and the Capacity Market. Detailed eligibility criteria will be established following an upcoming consultation.

Network Charging Compensation (NCC) Scheme

The support for the most energy-intensive industries eligible for the British Industry Supercharger package will be increased from 2026, with an uplift of the Network Charging Compensation (NCC) scheme from 60% to 90%.

Introducing a UK Carbon Border Adjustment Mechanism (CBAM)

From January 2027, a UK Carbon Border Adjustment Mechanism (CBAM) will be implemented. This measure is a strategic component of the government's efforts to mitigate carbon leakage and ensure a level playing field for domestic industries. Furthermore, ongoing work to link the UK's Emissions Trading Scheme with the EU's could create conditions for potential CBAM exemptions.

Review of the Energy-Intensive Industries Compensation Scheme

A comprehensive review of the Energy-Intensive Industries Compensation Scheme is anticipated by the end of this year. This review will define the framework for continued support for energy-intensive industries once the UK CBAM is introduced in 2027.

Funding for these measures will be secured through a reduction in levies and other costs within the energy system, complemented by additional funds derived from the strengthening of UK carbon pricing, particularly as a result of linkage with the EU carbon market.

Supporting Corporate Power Purchase Agreements (CPPAs)

To facilitate the expanded procurement of renewable energy by businesses, a call for evidence will be launched. This initiative aims to explore optimal pathways for developing a robust market for Corporate Power Purchase Agreements (CPPAs), thereby enhancing businesses' ability to enter into direct agreements with renewable energy generators.

Reducing Grid Connection Waiting Times

To accelerate grid integration for demand projects, a new 'Connections Accelerator Service' will become operational at the end of 2025. This service is designed to provide dedicated support for businesses seeking grid connections, with a strategic focus on prioritizing projects that generate high-quality jobs and deliver significant economic value. The overarching objective is to substantially reduce current grid connection waiting times.

Zonal Pricing

In a significant update, the government has confirmed that proposals for 'zonal pricing' have been officially abandoned. These plans, previously under consideration by Energy Secretary Ed Miliband, would have introduced varying electricity rates across different parts of England, Wales, and Scotland, based on local supply and demand dynamics.

This decision has been widely welcomed by investors, who had previously voiced concerns about the potential for increased complexity and investment uncertainty that zonal pricing could introduce into the energy market. Their assertion is that the move provides greater stability and predictability, which are crucial for attracting and securing long-term investments in the UK's energy infrastructure and industrial sectors.

Final Thoughts

The UK’s new Industrial Strategy represents a significant and decisive step toward reindustrialising the economy, fostering the growth of world-leading sectors, and ensuring sustained long-term economic expansion. The strategy has garnered a positive reception from the business community, with proponents asserting its potential to stimulate innovation, drive sustainable growth, and significantly enhance the competitiveness of UK businesses on the global stage.

About Big Energy Group

Big Energy Group is a privately held, British-owned energy brokerage with an established track record of helping clients successfully navigate the energy market. The company has offices in Harrogate and the Tees Valley and serves more than 500 businesses across the UK. For more information, please visit bigenergygroup.co.uk.

‍