Energy UK warns on industrial strategy failures

Britain's industrial strategy is currently falling short in addressing critical energy-related challenges, according to a recent warning from Energy UK. The trade body's report, "Industrial Strategy: Where next?", highlights that high electricity costs, slow grid connections, and the unfulfilled economic potential of electrification are hindering investment and growth across the UK. While the Modern Industrial Strategy identified key problems, its measures have only partially removed barriers to investment and growth1.

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Understanding the UK industrial strategy

The UK's industrial strategy aims to foster economic growth, boost productivity, and enhance competitiveness through various policy interventions. It seeks to reposition the state as an active partner in the growth agenda with businesses, driving investment and revitalising communities.

Objectives and ambitions

The primary objective of the industrial strategy is to drive growth by leveraging the UK's unique strengths and untapped potential, enabling world-leading sectors to adapt and expand. Key goals include supporting good jobs, unlocking investment, and improving living standards across the country. The strategy also aims to support net zero ambitions and regional growth, alongside economic security and resilience. The Modern Industrial Strategy, published in June 2025, sets out a 10-year plan to boost investment, productivity, and resilience.

The Modern industrial strategy's foundations

The Modern Industrial Strategy is founded on a mission to kickstart growth and recognises net zero as a significant economic opportunity. It brings together government plans and policies to increase private investment in the UK's future growth, including interventions to tackle high industrial electricity costs, promote trade, strengthen economic security, expand access to finance, and reduce regulatory burdens. It identifies eight high-potential sectors for targeted support.

Energy UK's critique: unpacking the challenges

Energy UK's report, "Industrial Strategy: Where next?", critically assesses the current strategy's effectiveness, arguing that it has provided only "piecemeal solutions" to systemic economic problems. The organisation urges the government to accelerate reforms and focus on creating a robust electrified economy. Adam Berman, Director of Policy and Advocacy at Energy UK, stated that "Systemic economic problems with growth, productivity, and competitiveness require a systemic solution. The Industrial Strategy has provided some piecemeal solutions, but it must evolve and go much further".

High electricity costs for businesses

High electricity prices remain one of the biggest obstacles facing businesses looking to switch from fossil fuels to electric technologies. UK industrial users have faced electricity prices that are among the highest globally. For instance, industrial electricity prices for medium users in the UK are around 89.3% higher than the EU14 median, while for large users, they can be as much as 125% higher. In 2023, UK electricity prices were also 46% higher than the International Energy Agency (IEA) median. These elevated costs erode profit margins, reduce competitiveness, and limit investment, particularly for energy-intensive industries.

The bottleneck of grid connections

Slow grid connections are a significant barrier to investment and growth for UK businesses. New research indicates that grid connection challenges are delaying new projects for 33% of businesses, increasing costs for 32%, and obstructing energy transition plans for 25%. For some data centres, obtaining a grid connection can take up to eight years, threatening billions in investment. This bottleneck is systemic, affecting various sectors from manufacturing to hospitality, and can halt company growth entirely for 34% of affected businesses.

Missed opportunities in electrification

The full economic potential of electrification is currently hindered by these systemic issues. While electrification is crucial for cutting emissions and reaching net zero, businesses face prohibitive wait times and costs for grid connections, a challenge projected to worsen. Energy UK's report argues that more firms will struggle to electrify, decarbonise, and remain internationally competitive unless the government addresses the cost gap between electricity and fossil fuels.

The imperative of decarbonisation and competitiveness

Decarbonisation is not merely an environmental necessity but a strategic economic choice that can strengthen the UK's economy, resilience, and energy security. This transition is projected to deliver significant economic benefits.

Transitioning from fossil fuels

The transition from fossil fuels is a core component of the UK's net zero target by 2050. This shift aims to reduce dependence on imported oil and gas, thereby lowering exposure to volatile global markets and price shocks. The industrial decarbonisation strategy sets out how industry can decarbonise in line with net zero while remaining competitive.

Boosting British industrial competitiveness

The British Industrial Competitiveness Scheme (BICS) was introduced to reduce electricity costs for around 10,000 businesses across eight sectors by removing some policy costs from bills. However, Energy UK dismisses it as a "sticking plaster solution" because it does not address the underlying causes of high electricity prices and leaves most of the economy without support.

The net zero target and economic growth

The UK's net zero economy is growing significantly, contributing around £105 billion in Gross Value Added (GVA) and supporting 1.1 million jobs. This sector's productivity is 48% above the UK average, with wages approximately 11% higher than the national average. Electrification is critical to UK prosperity, driving higher GDP growth, boosting productivity, and supporting investment in domestic infrastructure and clean technologies. By 2050, the UK's GDP could be over one percentage point larger in an electrification-led scenario compared to current policies, creating an estimated 250,000 more jobs. For every £1 created directly by net zero firms, a further £1.85 is generated across the wider UK economy through supply chains and household spending.

Towards systemic solutions for UK industry

Addressing the systemic challenges requires a comprehensive approach that includes accelerating reforms, strengthening supply chains, and reforming the energy market.

Accelerating planning reforms and permitting

Energy UK urges the government to accelerate planning reforms and simplify environmental permitting to reduce approval times for energy and industrial projects. This is crucial for creating an electrified economy and supporting growth-driving sectors. Reforms to planning rules have already been made to make it faster, cheaper, and more predictable to build and invest in the UK.

Strengthening domestic supply chains

A focus on creating an electrified economy with stronger domestic supply chains and clearer regulation is essential. Public funding should be used strategically to unlock private investment in supply chains where support could have the greatest economic impact.

Reforming the energy market for industry

Systemic economic problems with growth, productivity, and competitiveness require systemic solutions, not just piecemeal adjustments. This includes reforming energy pricing to reduce system costs and enable businesses to benefit from cheaper, cleaner energy. The current market structure, where gas often sets power prices, contributes to high electricity costs despite increasing renewable energy generation.

The path forward for a resilient UK industrial strategy

A resilient UK industrial strategy demands a clear vision and long-term commitment to an electrified economy and robust energy infrastructure.

Creating an electrified economy

Creating an electrified economy is not only vital for meeting climate targets but also represents a strategic economic choice for stronger growth and improved energy security. This involves enabling industrial electrification and unlocking investment across the economy.

Long-term vision for energy infrastructure

A long-term vision for energy infrastructure is paramount to support the expected increase in electricity demand, which could rise by 50% by 2035. Investment in the electricity network has the potential to bring forward hundreds of billions in investment and create tens of thousands of jobs. Speeding up grid connections is a critical component of this vision, ensuring that new technologies and economic opportunities are not hampered by delays.

Policy evolution for future growth

The industrial strategy must evolve and go much further than its current form, with a coherent, long-term approach that prioritises high-growth green sectors and cuts barriers to investment. This includes aligning policy with net-zero goals and ensuring that the UK remains a leading place to innovate, invest, and grow businesses in the industries that will shape the future economy.

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References

1. Energy Live News. Energy UK warns industrial strategy is failing to tackle high power costs.