UK energy market reforms pose a danger to industry and investment, ministers have said

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Proposals to split Britain’s electricity market so prices differ by region risk raising costs for producers and discouraging investment, some of Britain’s biggest trade groups have warned the government.

UK Steel, Make UK, RenewableUK and the Global Infrastructure Investor Association have written to ministers saying they are concerned the proposals, drawn up by the Conservative government, could “increase the risks of deindustrialisation”.

“We are clear that dividing the UK into several regional price zones would undermine investment in low-carbon energy and risk penalizing the UK’s energy-intensive industries with higher energy costs,” they said in the letter sent on Friday and spotted by the Financial Times. .

The message comes at a sensitive time for the new Labor government, which is trying to demonstrate the UK’s attractiveness to investors ahead of its global investment summit on October 14. Recipients included Energy Secretary Ed Miliband and Jonathan Reynolds, the Business Secretary.

The proposed reforms are part of potential major changes to the electricity market, first advanced in 2022, to accommodate the shift to renewable sources of generation such as intermittent wind and solar power. Labour, which is making a big push on renewable energy, has yet to outline its position on them.

The UK currently has a single national wholesale electricity price. The proposals include an option to split the market so that wholesale prices differ by region based on supply and demand.

Proponents argue that this could make the market more efficient and keep system costs down by encouraging consumers to use electricity when it’s plentiful nearby, rather than letting it go to waste, as is often the case.

Guy Newey, chief executive of innovation hub Energy Systems Catapult, said the market needed “urgent reform”, adding: “Zone pricing is already commonplace in a large number of international markets and has reduced costs for consumers.”

Ultimately, supporters argue that the move could encourage industry to move to areas with abundant renewables supplies, such as parts of Scotland, while developers could expand in less energy-supplied areas from renewable sources as they could fetch higher prices.

However, trade groups are concerned that the proposals would risk higher prices for industries that use large amounts of electricity, such as steel, glass and ceramics. They would also add to the risks facing renewable developers, they said.

“A steel mill miles wide simply cannot pick up and leave to access lower energy prices elsewhere,” added Frank Aaskov, director of energy policy and climate change at the UK Steel, in comments separate from the letter.

“That’s before we factor in the billions invested in operations, let alone the workers who might be left behind.”

The relatively high costs of electricity have long been a source of complaint for the industry, which is moving away from fossil fuels. Both Tata Steel and British Steel are closing UK coal-fired furnaces and switching to electric arc furnaces.

Jon Phillips, chief executive of the Global Infrastructure Investor Association, noted that global investors are “looking for long-term, low-risk investments that generate consistent returns.”

He added: “The introduction of zonal pricing . . . risks undermining the government’s ambitions to attract more international investment to the UK. It is important that energy policy provides the long-term stability that investors are looking for.”

A UK government spokesman said it was looking at the responses to the consultation on the issue and would “ensure that any reform options adopted focus on protecting bill payers and encouraging investment”.

“Our new industrial strategy will deliver sustainable, long-term growth across the UK, supporting our industries and boosting private investment in our economy,” they added.