Ministers are considering a commitment to cut soaring industrial energy prices for British companies to the same level enjoyed by competitors in France and Germany as part of its industrial strategy.

Sky News understands proposals to make energy prices more competitive are at the heart of final discussions between the Department for Business and Trade and the Treasury ahead of the publication of its industrial strategy on Monday.

Industrial electricity prices in the UK are the highest in the G7 and 46% above the median for the 32 member states of the International Energy Agency, which account for 75% of global demand.

In 2023, British businesses paid £258 per megawatt-hour for electricity compared to £178 in France and £177 in Germany, according to IEA data. Matching those prices will require a reduction of around 27% at a cost of several billion pounds.

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Earlier this month, automotive giant Nissan said UK energy prices make its Sunderland plant its most expensive in the world.

Business secretary Jonathan Reynolds is understood to be sympathetic to business concerns, and chancellor Rachel Reeves told the CBI’s annual dinner the issue of energy prices “is a question we know we need to answer”.

Extending relief

While around 350 companies in energy-intensive industries, including steel, ceramics and cement, enjoy some relief from prices through the energy supercharger scheme, which refunds 60% of network charges and is expected to rise to 90%, there is currently no support for manufacturers.

Sky News understands ministers are considering introducing a similar scheme to support the 200,000 manufacturing businesses in the UK.

Cutting network costs entirely could save more than 20% from electricity prices.

Explainer: Why are UK industrial electricity prices so high?

The mechanism for delivering support is expected to require consultation before being introduced to ensure only businesses for whom energy is a central cost would benefit. This could be based on the proportion of outgoings spent on energy bills.

It is not clear how the scheme would be funded, but the existing industrial supercharger is paid for by a levy on energy suppliers that is ultimately passed on to customers.

A central demand

Bringing down prices, particularly for electricity, has been the central demand of business and industry groups, with Make UK warning high prices are rendering businesses uncompetitive and risk “deindustrialising” the UK.

The primary driver of high electricity costs in the UK is wholesale gas, which both underpins the grid and sets the price in the market, even in periods when renewables provide the majority of supply.

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Why are costs so high?

Wholesale prices account for around 39% of bills, with operating costs and network charges – the cost of using and maintaining the grid – making up another 25%, and VAT 20%.

Business groups, including the manufacturers group Make UK, have called for a reduction in those additional charges, as well as the so-called policy costs that make up the final 16% of bills.

These are made up of levies and charges introduced by successive governments to encourage and underwrite the construction of renewable sources of power.

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Make UK estimate that shifting policy costs into general taxation would cost around £3.8bn, but pay for itself over time in increased growth.

Government sources confirmed that energy prices are a central issue that the industrial strategy will address, but said no final policy decisions have been agreed.

The industrial strategy, which is delayed from its scheduled publication earlier this month, will set out the government’s plans to support eight sectors identified as having high-growth potential, including advanced manufacturing, life sciences, defence and creative industries.

Britain has the highest industrial electricity prices in the G7, a cost businesses say makes it impossible to compete internationally and risks “deindustrialising” the UK.

Electricity prices are driven by wholesale fuel prices, particularly natural gas, but include taxes and “policy costs” that business groups, including Make UK and the CBI, want the government to cut.

Sky News understands the issue is a “live discussion” within government as ministers finalise the government’s industrial strategy, due to be published next week.

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So what are the options, and why are prices so high in the first place?

How much does UK business pay for electricity?

Industrial electricity prices in 2023 were 46% higher than the average of the 32 members of the International Energy Agency, a group that includes EU and G7 nations that, between them, account for 75% of global demand.

UK businesses paid an average of £258 per megawatt-hour, according to IEA data – higher than Italy (£218), France (£178) and Germany (£177), and more than four times the £65 paid on average in the USA.

While wholesale prices have been driven up in the last five years by external factors including post-pandemic demand and the Ukraine war, this is not a blip – UK prices have been consistently above the IEA average for decades.

Why are prices so high?

The main determinant is exposure to wholesale gas markets. Gas underpins the UK grid, reliably filling the gaps renewables and nuclear sources cannot fill. Crucially, gas also sets the price in the electricity market even when it is not the primary source of energy.

The UK market uses a “marginal pricing system”, in which the price is set by the last, and thus most expensive, unit of power required to meet demand at any one time.

That means that while renewable sources, initially offered at a cheaper price, may provide the majority of power in a given period, the price for all sources is set by gas-fired power stations providing the balance of supply.

Industrial electricity bills are lower in markets that are less exposed to gas. In France, gas sets the price less than 10% of the time because its fleet of nuclear power stations underpin supply.

What makes up electricity bills?

The biggest single element of electricity prices is wholesale gas costs, which make up 39% of the bill, according to industrial supplier SEFE.

The next largest element is “network costs”, charges imposed for using, maintaining and expanding the grid, which account for 23%. Operating costs are 2%, with VAT adding a further 20%.

The remaining 16% of electricity bills is made up of “policy costs”, levies and payments introduced over the last two decades to subsidise the construction of renewable power capacity, primarily wind power.

Increasing renewable supply and storage to reduce exposure has been the long-term solution favoured by successive governments. Sir Keir Starmer‘s administration has a target of shifting to a “clean power” grid by 2030 and achieving net-zero carbon emissions by 2050, a target Kemi Badenoch describes as “impossible”.

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Some energy-intensive industries (EII), such as chemicals, steel, and cement, already receive support, with a 60% relief on network charges and a reduction of around 10% from the British Industry Supercharger fund, which the government is considering increasing.

What does business want?

Business groups are calling for these policy costs to be lifted and shifted into general taxation, calculating that a 15% reduction in prices would give them a chance of competing more equitably.

Make UK say cutting policy costs would cut 15% from bills, and is also proposing a “contract for difference” for manufacturers’ electricity, a model borrowed from the renewables market.

Under the plan, the government would guarantee a “strike price” for electricity 10% lower than the wholesale price. When prices are higher, the taxpayer would refund business, and when they are lower, industry would pay back the difference.

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Make UK estimate the cost to the exchequer of £3.8bn. They believe it will be cost-neutral courtesy of increased growth. The alternative, they say, is an uncompetitive manufacturing sector doomed to decline.

“We need to see the government remove those costs in the industrial strategy,” says Make UK chief executive Stephen Phipson.

“We believe it will be cost-neutral because of the benefit to the economy of retaining manufacturing in this country. If we don’t see it happen, we will risk deindustrialising the United Kingdom.”

A government spokesperson said: “Through our sprint to clean power, we will get off the rollercoaster of fossil fuel markets – protecting business and household finances with clean, homegrown energy that we control.”

Dr Victoria Rose is a consultant plastic surgeon who worked in Gaza hospitals for two separate periods last year. This is her first-hand story of the war in Gaza.

The word “dire” does not adequately describe the situation in Gaza’s hospitals.

On a daily basis when I was working there, I had a list of at least 10 patients, and 60% of them were under the age of 15.

These were tiny children with life-threatening burns and limbs blown off, often losing significant family members in the attacks and left to cope with their life-changing injuries alone.

I first joined the charity IDEALS, which helps medical professionals during crises, in Gaza in 2019. I returned last year, working with orthopaedic surgeons.

I felt compelled to go back after becoming aware that a plastic surgeon from Gaza who trained with me in London had been inundated with complex trauma cases since the war broke out in October 2023.

Our aim was to deliver essential surgical equipment and assist our colleagues with the increasing trauma workload they faced. But as the war progressed, it became apparent that we had a third objective: to bear witness.

I worked at the European Gaza Hospital in March 2024 and then returned in August of that year for a month, working at Nasser Hospital.

The transformation of the landscape during these two visits was staggering. The streets were unrecognisable, just pile after pile of dust and rubble. Such a scale of destruction could only be justified if every single building in Gaza was part of Hamas’s infrastructure.

In February 2024, we were denied entry by COGAT – part of the Israel Defence Forces (IDF) controlling activities in the occupied territories – which, regrettably, has become a standard outcome for 50% of foreign doctors attempting to gain access. However, we managed to regain access in May.

This mission was intended to last four weeks at the European Gaza Hospital. However, due to its bombing on the day we arrived and its subsequent decommissioning by the IDF, we were redirected to Nasser for three and a half weeks.

The population had now been relentlessly displaced, bombed in their tents, deprived of water and sanitation, and ultimately starved. I remember thinking it couldn’t get any worse – and then they cut the internet.

We ploughed on without essential equipment such as painkillers and antibiotics, patching the patients up, knowing that they were likely to be bombed again.

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When we left the hospital we went into the red zone – an area of active fighting that needed to be evacuated.

This meant that nothing could enter without the journey being “deconflicted” by the IDF. Minimal journeys have thus far been deconflicted. Patients struggle to gain entry, and staff cannot leave, as equipment continues to be depleted.

Nasser is the only hospital in the south equipped with a CT scanner, a blood bank, ICU capabilities and an oxygen generator.

I work with two orthopaedic surgeons who run the IDEALS charity. They have been travelling to Gaza since 2009.

IDEALS started the lower limb reconstruction programme in 2013, visiting Gaza every other month and bringing four orthopaedic surgeons back to the UK for short periods of training.

In 2021, I arranged for a plastic surgeon from Gaza to come to London to train with me. He was an incredible trainee and returned to Gaza in February 2023 to take up the post of chief of plastic surgery at Shifa Hospital.

Shortly after the war broke out, I felt compelled to help him.

All eyes are now on Israel’s next move.

Gaza: Doctors On The Frontline will air on Sky News at 9pm on 19 June