I have written many times about the dishonesty inherent in the UK’s energy policy (see Big Beautiful (Electricity) Bill on Woodford Views). In summary, for those new to the subject, the UK has the highest industrial electricity prices in the world, which exceed those in our nearest competitor economies by a considerable margin (for example, they are 4x higher than in the US). These very high prices are the product of energy policy choices made by successive governments that decided the UK should lead the world in the race to decarbonise its economy.

In particular, the UK government’s decision to remove all fossil fuel generation from the energy system by 2030 through economic penalties and incentives means that renewable developers and companies building new nuclear power will receive huge subsidies to build the necessary infrastructure. The associated grid costs required to reformat and connect these new energy sources are also significant. These vast subsidies paid to developers building new energy infrastructure and the associated grid costs are paid for by industrial and household consumers through their bills. As a result, they are very, very high.

Now, some may applaud this race to net zero, but what is clear about this policy choice is that it has profound implications for the broader economy, which successive governments have never confronted or been honest with the electorate about. For example, no energy-intensive business with an option to locate in other countries would choose to operate here because to do so would be an act of economic self-harm. Existing energy-intensive businesses here have to contend with very high costs, which, if they can, they pass onto their customers, and where they can’t because they compete with businesses operating in lower-cost locations, they go out of business. Consequently, the hidden costs of this net-zero policy choice have had a very damaging impact on these important industries and the UK’s wider economic well-being.

The reason I have regurgitated this subject is because a couple of days ago, in a somewhat better late than never announcement, the government has said, tucked away in a new “Modern Industrial Strategy” paper of 160 pages, that it is launching a new approach to industrial energy policy which will “tackle high industrial electricity costs”.

Apparently, (I have not yet read all 160 pages) a new “competitiveness scheme” will significantly reduce electricity costs for more than 7,000 energy-intensive businesses (by up to £40 per megawatt hour) by exempting them from paying various green levies (Renewables Obligation, Feed-in Tariffs and Capacity Market payments) and that this new scheme will come into force in 2027. So far, so good.

At this point, I cannot resist having a pop at the Energy Secretary. Very recently, he said that high UK electricity prices were the direct result of our dependence on imported gas, which is both expensive and volatile. Well, it now appears that the government has a new explanation for high industrial electricity prices in the UK, which directly contradicts Mr Miliband’s previous stance on the issue. I wonder if he will be minded to apologise for his previously misleading comments on this subject, but I suspect not.

I am trying hard not to be cynical about this new Industrial Strategy. From my first scan of the lengthy document that outlines what it is, there appears to be some good stuff in it and the eight sectors targeted for investment (Advanced manufacturing, Creative Industries, Life Sciences, Clean Energy, Defence, Digital Technologies, Professional and Business Services and Financial Services) are all areas of existing strength in the UK. Nevertheless, I can’t help thinking that even if the government can deliver all that it promises in this document, scaled private sector investing institutions (pension and other long-term savings funds) here in the UK must also fundamentally change their attitude to investment in their home economy if the hoped for outcomes are to be delivered. Here, the omens are not good, given that over the last twenty years or so, these funds have all been busy eradicating UK risk capital from their investment portfolios.

Finally, to the issue of industrial energy prices, where this note began. The UK is still committed to its incredibly ambitious net-zero goals, and I suspect that, because of that commitment, electricity prices here will continue to climb to provide the revenue that the government will need to incentivise more renewable investment. I fear that by 2027, the gap between industrial electricity prices here and those in competitor economies will be even bigger than today. This will continue to drive many businesses out of the UK despite the exclusions coming in 2027. It is also not clear how these subsidies will be paid for. The document suggests that the “energy measures will be funded through reforms to the energy system, without raising household bills or taxes”. In other words, we don’t know where the money will come from, but given that there isn’t a magic money tree in Whitehall, I suspect the wider British business community will be picking up the tab, so in effect robbing Peter to pay Paul.

So, to answer the question at the top of this note, maybe the penny is dropping, but without significant reforms to the UK’s net-zero ambitions and timescales, the energy price problem in the UK has not gone away, not by any means.