Why are UK industrial electricity prices so high - and what can be done about it?

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.

Money blog: Interest rate held - but Bank of England gave 'small surprise' 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.