UK vs. Europe: We Compare Business Electricity Prices
When you compare business electricity prices, it’s no secret that Germany, France and many other European counterparts have cheaper industrial electricity prices than the UK. But why is this the case?
A new report by the University College London has set out to answer this question. Here are some of their findings:
Why is the UK paying more for electricity?
In the early 2000s, the UK’s power prices were mainly determined by the cost to operate a gas power plant. As long as the price of gas remained low, so did the price of power. At the same time, the UK government was facing increasing pressure to start transitioning to renewable energy. This meant that more of the UK’s existing infrastructure needs to be upgraded, which led to higher system operating and maintenance costs.
Between 2008 and 2012, a surge in gas prices led to higher energy prices in Europe and the UK. Although the increase plateaued in Europe after 2012, the UK prices continued to rise. When we compare business electricity prices, this eventually created a price gap of around 35% between the UK and Europe for industrial consumers.
Why did the UK prices continue to rise?
- Year of underinvestment in the UK energy system meant that is was aging and in need of an upgrade
- The proposed shift to green power led to uncertainty in the industry
- The transmission upgrades required by green power were also costly
Because industrial energy consumers have the highest usage, the bulk of the costs to upgrade are transferred to industrial customers.
And why were other European countries not affected?
When we comparing business electricity prices with other European countries, the UKL has some of the highest industrial energy tariffs. But why is this?
Countries such as Italy, Germany and France, tend to recover more policy costs from commercial and domestic users, which means lower tariffs for industrial users.
Energy prices in much of Europe also remained more stable than those of the UK since these countries have been consistently building electricity interconnectors between Member States. This means that countries are easily able to share energy supply to compensate for national troughs and peaks in demand. In the UK, on the other hand, a lack of effective interconnections means that energy cannot be shared in the same integrated way.
What can be done?
The report claims that the UK is making progress in addressing the energy cost challenge for industrial users by regulating markets differently and funding renewable energy products more efficiently.
However, it also lists some suggestions for UK policymakers to reduce energy costs for industrial users:
- Take advantage of solar and wind power, the cheapest mature renewables, reforming planning laws to allow new onshore projects to come forward.
- Go ahead with interconnector projects, regardless of the outcomes of Brexit.
- Establish a new structure for industrial energy purchases across borders.
- Ensure that carbon is properly accounted for in energy imports.
- Provide a long-term investable carbon price signal.
- Create a market for long-term, zero-carbon electricity contracts and offer industrial customers unsubsidised green energy at a cost that decreases over time.
Although the impact of Brexit hangs over UK policymakers’ heads, it’s clear that there are tangible and immediate steps the government could take to put UK electricity prices back on par with other European nations.
How to reduce your electricity costs now
While we wait for the government to implement solutions for industrial power prices, we suggest shopping around to make sure that your business is getting the best possible deal for your needs.
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