UK Government announces major energy cost reductions in New Industrial Strategy

The UK government has unveiled a new ten-year Industrial Strategy aimed at enhancing the competitiveness of domestic manufacturing sectors, with a particular focus on high energy costs that have long burdened energy-intensive industries such as steel.

A key measure under the plan is a significant reduction in industrial electricity costs, with more than 7,000 businesses expected to benefit from cuts of up to 25% starting in 2027. The strategy introduces two new instruments—the British Industrial Competitiveness Scheme and an expansion of the British Industry Supercharger—which together aim to ease the cost pressures facing UK manufacturers.

From 2026, steel producers and other energy-intensive users will see their electricity network charge discounts increase from 60% to 90%. In addition, qualifying businesses will be exempt from environmental levies such as the Renewables Obligation, Feed-in Tariffs, and the Capacity Market. According to the government, this package will reduce electricity costs by up to £40 per megawatt hour for eligible firms, without increasing costs to taxpayers.

The steel sector, which has consistently highlighted electricity prices as a critical competitiveness issue, is among the intended beneficiaries. Industry groups, including Make UK and the Confederation of British Industry (CBI), welcomed the measures, noting that energy costs have historically constrained investment and production in UK steelmaking.

The Industrial Strategy also includes commitments to improve grid access, accelerate planning processes, and increase skills investment across key sectors. A new Connections Accelerator Service will be launched in late 2025 to fast-track electricity grid access for large industrial projects, with an emphasis on projects offering significant economic and employment benefits.

Targeted support will be directed toward eight designated “growth sectors,” including Advanced Manufacturing and Clean Energy, both closely linked to the steel value chain. Advanced manufacturing will receive up to £4.3 billion in support, including £2.8 billion in R&D funding over five years, to strengthen domestic supply chains and stimulate innovation in materials and production technologies.

Funding for these initiatives will be sourced through energy system reforms and strengthened UK carbon pricing, including potential revenue from a planned link between the UK and EU Emissions Trading Systems. This linkage, if completed, is intended to mitigate the risk of UK exporters facing additional EU carbon taxes, while keeping revenues within the UK to support domestic industry.

The full Industrial Strategy is now open to consultation, with final eligibility criteria for the electricity price support schemes to be confirmed in due course.

Industry stakeholders have widely praised the strategy’s long-term focus. Make UK Chief Executive Stephen Phipson described it as “a much-needed step forward” in addressing structural challenges facing UK industry, while SMMT CEO Mike Hawes noted that competitive energy pricing is “the number one priority” for industrial investment.

The reforms come amid ongoing global competition for green industrial investment, as manufacturers look to decarbonise operations while maintaining cost efficiency. For the steel industry, the combination of reduced operating costs, improved grid access, and new R&D funding represents a potential turning point in efforts to modernise and maintain production within the UK.

Source: UK Government, Photo: Fotolia