Why Is Electricity So Expensive for UK Manufacturers?
Electricity remains a major cost pressure for UK manufacturers, particularly for businesses running machinery, production lines, compressed air, cooling and other energy-intensive processes for long operating hours.
So, why is electricity so expensive for manufacturers in the UK? There is no single cause. Wholesale electricity costs remain closely connected to natural gas prices, while network charges, policy costs and the way the electricity market operates all feed into the final price businesses pay.
Although average non-domestic electricity prices have fallen from their 2023 peak, they remain well above pre-energy-crisis levels. For manufacturers, understanding what drives electricity prices can make it easier to plan renewals, manage exposure to market volatility and make informed energy purchasing decisions.
Why do UK manufacturers pay so much for electricity?
A manufacturing electricity bill includes more than the wholesale price of the power itself. Ofgem explains that business energy contracts can include wholesale costs, network charges, taxes such as the Climate Change Levy, and costs linked to government energy schemes.
For businesses with high and consistent electricity demand, movements in these costs can have a noticeable effect on operating expenditure. This is particularly relevant across energy-intensive industries, where a small movement in the unit rate can translate into a much larger change in the overall electricity bill.
Business Utility Hub helps manufacturers compare manufacturing energy contracts with these wider cost pressures in mind.
1. Natural gas still has a major influence on electricity prices
The UK now generates a large share of its electricity from renewable energy, but natural gas still plays an important role in the electricity system.
Government energy statistics show that gas accounted for around 31.5% of UK electricity generation in 2025, while renewables provided a record 52.5%. Gas power plants remain useful because they can generate electricity when demand is high or when output from weather-dependent renewable energy sources is lower.
That matters for prices because gas-fired power plants are often among the more expensive generators needed to meet demand. Ofgem explains that wholesale gas prices can therefore set the wholesale electricity price a large majority of the time.
How can world events affect UK electricity prices?
Natural gas is traded internationally, so supply disruption and geopolitical events can affect wholesale gas prices even when the UK is not directly buying most of its gas from the country or region involved. Wholesale gas prices rose sharply after Russia's invasion of Ukraine.
Conflict, shipping disruption and wider uncertainty can also move crude oil and other global energy prices. For UK electricity, however, natural gas prices are the more direct influence because gas remains part of the power generation mix.
2. Marginal pricing links gas and electricity costs
The wholesale electricity market in Great Britain broadly operates using marginal pricing.
Different power generators can have very different costs. Wind farms and solar generation do not need to purchase natural gas to generate electricity, while gas-fired power stations must buy fuel. Electricity is generally dispatched according to what is available and required to meet demand, with the marginal generator influencing the market price for that period.
Ofgem explains that cheaper generation may be used first, but the price can be set by the most expensive generation needed at that point. Gas plants frequently perform this marginal role.
This helps explain why high gas prices can push up wholesale electricity costs even when a large amount of the electricity produced comes from lower-cost renewable generators.
3. Network costs are built into business electricity bills
Electricity has to move from generators through the transmission and distribution networks before it reaches a manufacturing site.
The costs of running, maintaining and upgrading that electricity grid form part of business electricity prices. Depending on the contract, these can include charges such as Transmission Network Use of System (TNUoS), Distribution Use of System (DUoS) and balancing costs.
Network investment is also increasing as Great Britain connects new generation, storage and demand to the system. These costs are separate from the wholesale price of electricity, which is why falling wholesale energy prices do not automatically translate into an equivalent reduction in the final price paid by every manufacturer.
4. Policy costs and levies also contribute
UK non-domestic energy bills can include costs linked to government schemes and taxes. Examples include the Renewables Obligation, Contracts for Difference, Feed-in Tariffs and the Climate Change Levy.
From 1 April 2026, the main Climate Change Levy rate for electricity is £0.00801 per kilowatt hour. Eligible energy-intensive businesses with a Climate Change Agreement can receive a substantial reduction in that levy, subject to the scheme rules.
Some energy-intensive industries may also qualify for wider government support. The British Industry Supercharger, for example, includes exemptions from certain policy costs and compensation for eligible electricity network charges.
The important point is that the final electricity cost depends on the individual business, contract structure and any relief for which it qualifies. Policy costs should therefore be considered alongside the wholesale price rather than in isolation.
5. Why high electricity prices matter particularly to manufacturers
Manufacturing businesses often have less flexibility over electricity consumption than lower-intensity sectors. Machinery, motors, production lines, refrigeration, ventilation and control systems may need to operate for long periods or according to fixed production requirements.
This can make electricity price movements particularly important for forecasting and margins. An energy-intensive manufacturer buying millions of kilowatt hours a year experiences a different financial impact from a business with relatively low annual consumption.
The UK manufacturing sector is also internationally exposed. Higher industrial energy prices can affect production costs and the ability of British manufacturers to compete with businesses operating in countries where electricity is cheaper. Electricity-intensive sectors face risks of carbon leakage due to high energy costs in the UK.
Fixed or flexible energy contracts for manufacturers
A fixed-price contract can provide greater budget certainty by agreeing some or all energy costs for a defined period. This can be useful where predictable expenditure is a priority.
Flexible purchasing arrangements allow eligible larger businesses to buy portions of their energy at different times rather than fixing the full requirement in one transaction. This can provide more purchasing control, but it also brings greater exposure to market movements and normally requires more active management.
Neither approach is automatically right for every manufacturer. Consumption, purchasing strategy, risk appetite and internal resources all influence which contract structure is suitable.
Are UK industrial electricity prices higher than elsewhere?
Recent official comparisons show how significant that challenge has been. UK industrial electricity prices rank higher than those of many European countries like Germany and France.
Office for National Statistics analysis found that the average UK non-domestic electricity price rose from 14.81p per kilowatt hour in early 2021 to a peak of 28.39p per kilowatt hour in the final quarter of 2023.
The latest full-year figures published by the Department for Energy Security and Net Zero show an average non-domestic electricity price of 24.3p per kilowatt hour in 2025, down from 26.3p in 2024, but still considerably higher than before the energy crisis.
International comparisons also show the UK near the top of the table. In DESNZ's 2024 comparison of International Energy Agency countries, the UK had the highest industrial electricity price including taxes and levies among the countries in the dataset. That is not the same as saying the UK is always the most expensive country in the world, as international datasets and methodologies differ.
Does renewable energy make UK electricity cheaper?
Increasing renewable energy generation can reduce the amount of fossil fuel needed to produce electricity and reduce exposure to natural gas over time. The UK aims to reduce gas's role to 5% of electricity by 2030. The UK generated a record 52.5% of its electricity from renewable sources in 2025, with wind making up the largest share of renewable generation.
However, more renewable energy does not immediately mean that every business electricity contract becomes cheaper. The wholesale market still needs enough generation to meet demand at each point in time, and gas power plants can continue to influence the marginal price when they are required.
There are also wider system costs involved in connecting renewable energy projects, reinforcing networks and balancing supply and demand. Energy storage, stronger network capacity and further renewable deployment could all affect how the electricity market develops.
Will UK electricity prices come down?
Electricity prices can fall, but there is no reliable way to predict a single future market price.
Wholesale gas prices, weather, renewable generation, demand, network investment, electricity market reform and international events can all move prices in either direction. The price a manufacturer actually pays also depends on when energy is purchased and the structure and length of the business energy contract.
Government policy is also changing. The British Industrial Competitiveness Scheme (BICS) is intended to reduce electricity costs for up to £40 per MWh for eligible manufacturing businesses from April 2027.The BICS is open for application from 1 October to 30 November 2026. Businesses can use the government’s BICS eligibility checker to confirm you qualify or contact our energy specialists for clear next steps.
How do manufacturers reduce their energy costs?
Manufacturers can approach energy costs from two directions: how much energy the business uses and the commercial price paid for the energy it still needs.
Operational efficiency can reduce overall consumption, but procurement decisions also matter. Areas worth reviewing on the commercial side include:
- contract end dates and renewal windows;
- current electricity and gas unit rates;
- standing charges and pass-through costs;
- whether the existing contract still reflects current consumption;
- fixed versus flexible purchasing options;
- exposure to out-of-contract or deemed rates; and
- market conditions before agreeing a new contract.
Business electricity contracts are not covered by the domestic energy price cap, so the price available to a manufacturer depends on the commercial market and the supplier offers available to that business.
Compare the price of the energy your business still needs
Even where a manufacturer is actively reducing consumption, electricity and gas may remain essential to production. Reviewing procurement alongside efficiency measures can therefore provide a more complete view of energy costs.
Business Utility Hub monitors business gas and electricity prices daily and can help manufacturers compare business gas and electricity contracts from its selected supplier panel.
We explain unit rates, standing charges, contract lengths and other relevant terms clearly so you can compare the available options on a like-for-like basis. There is no obligation to switch.
How Business Utility Hub can help manufacturers manage energy costs
Manufacturers understand their own production requirements. Business Utility Hub focuses on the commercial energy market around those requirements.
Our energy specialists track electricity prices, gas prices and supplier movements every day. We can review your existing contract position, upcoming renewal dates and available options, then explain how different contracts compare.
When you work with Business Utility Hub, we monitor the business energy market daily, compare options across our selected UK supplier panel and explain contract terms and pricing clearly. You will have a dedicated account manager who understands your sites and renewal dates, with transparent commission disclosure on request, no obligation to switch and full switching management if you choose a new contract.
For manufacturers dealing with high electricity prices, the aim is not to predict every movement in the electricity market. It is to understand your current position, review the options available and make informed purchasing decisions when your contract allows you to act.
Review your energy contract before you sign elsewhere
Review your business electricity contract before renewal, after expiry or if your manufacturing facility is getting the best rate
