Trends and Lessons from 2021 to 2024 and What Comes Next
Higher energy costs have reshaped the way UK businesses operate over the past few years. From global events to domestic policy changes, the pressure on companies has been immense. Understanding these trends is key to preparing for the future.
A Perfect Storm for Rising Prices
The Office for National Statistics reports that UK electricity prices rose sharply between 2021 and 2024, closely tracking the rise in global gas prices. The first uplift came as the world economy emerged from COVID-19, followed by further hikes after Russia’s invasion of Ukraine. By the end of 2024, electricity costs remained around 75% higher than in early 2021.
Why UK Businesses Face Higher Energy Prices
UK electricity prices are among the highest in the developed world. This is largely because the cost to consumers is set by the most expensive source of energy in the system — often gas. Even on days when renewables or nuclear could meet demand, if gas generation tops up supply, the gas price drives the overall cost. In contrast, other European countries often base prices on their main source of generation, making their energy cheaper.
Impact on Industry and Manufacturing
UK Steel has highlighted that steelmakers here pay far more for energy than competitors in Germany or France. This price disparity leaves UK industry at a disadvantage, with some sectors paying tens of millions more annually. At the same time, output from energy-intensive manufacturing has dropped to its lowest level in 35 years, showing how higher energy costs have hit productivity.
Energy Security and Supply Shifts
Since the Ukraine war, the UK has shifted towards greater reliance on imports. In 2024, 51% of gas came from Norway, 17% from the US, and 31% from domestic sources. Long-term deals, like Centrica’s £20 billion contract with Equinor, aim to secure supply while also leaving room to adapt to hydrogen and other future fuels.
Policy Responses and Support
The government has pledged to cut electricity network costs for energy-intensive businesses by up to 90% from 2027, as part of a ten-year industrial strategy. These moves are designed to bring UK prices closer to those in Europe, helping restore competitiveness.
The Case for On-Site Renewables
With higher energy prices unlikely to disappear, more businesses are turning to on-site generation. Solar PV and battery storage systems allow firms to fix costs, reduce reliance on wholesale prices, and strengthen sustainability credentials. Power Purchase Agreements (PPAs) also offer a way to install solar with little or no upfront investment.
Looking Ahead
Energy prices may ease slightly, but volatility is here to stay. Global events will continue to affect gas and electricity costs. For UK businesses, renewables, storage, and self-generation are becoming not just cost-saving options, but strategies for resilience.
Sources:
Office for National Statistics,
UK Steel,
Centrica.