Factories will be forced to close if radical net zero proposals to overhaul electricity pricing go ahead, Ed Miliband has been warned.
Manufacturers have told the Energy Secretary that introducing so-called zonal pricing – which would mean higher prices in the South relative to Scotland, for instance – would have disastrous consequences for jobs and investment.
Make UK, the industry lobby group, warned in a consultation response: “Steel or other energy intensive industries would have no realistic option to relocate their very heavy assets to more favourable pricing zones and would instead be forced to shut down.
“Moreover, encouraging a factory to move makes it open to moving out of the UK entirely, as it will reconsider all its options for the best location.”
At the moment, electricity is traded across one wholesale market covering all of the UK.
The change, proposed under the previous Conservative administration, would mean areas close to wind and solar farms pay less for power. It has been suggested as a way of reforming the country’s electricity grid to ease the shift to net zero by reducing the need for new power lines.
Supporters including Octopus Energy say it will cut tens of billions of pounds of waste from the system, reducing household bills while stimulating manufacturing investment in areas where electricity will be cheapest, such as Scotand.
But Make UK and other trade bodies say this analysis is flawed and that the changes will have dire consequences for existing heavy industry and manufacturers located in zones where prices will be higher.
In these areas, they say businesses are more likely to leave Britain than consider moving their operations north.
UK Steel, which represents Tata Steel, British Steel and other producers, is among those warning ministers to reconsider.
Along with Make UK and the Energy Intensive Users Group, it is urging Mr Miliband to drop proposals and adopt alternatives that will cut power prices for manufacturers.
Frank Aaskov, of UK Steel said: “It is absurd that officials proposed to increase prices for the steel sector.
“The new Government clearly backs steel. But zonal pricing is an extreme reform of the electricity market, creating winners and losers through a postcode lottery.
“The new Government inherited this policy idea, but it now has the opportunity to bin it, ensuring the steel industry can invest.”
The warnings come at a sensitive moment, as Labour ministers are seeking to negotiate taxpayer-supported deals to enable Port Talbot-based Tata Steel and Sc*nthorpe-based British Steel to replace loss-making blast furnaces with more modern electric arc furnaces.
Electricity prices in the UK are already much higher than those in Europe.
British companies paid about £66 per megawatt hour for electricity in the second quarter of 2024, compared to £27 per megawatt hour in France and £28 per megawatt hour in Spain, according to an analysis by UK Steel.
TV Narendran, managing director of Tata Steel, has separately warned of high energy costs as well, telling broadcasters earlier this year: “The UK Government has assured us that in the next few years energy costs will come down.”
Previous governments have sought to bring electricity costs down, for example through the British Supercharger scheme which exempts some manufacturers from paying network charges.
But Make UK and Steel UK are concerned that shifting to zonal electricity pricing will undermine these efforts and leave manufacturers who are historically based in high-price areas at a major disadvantage.
The row over zonal pricing has pitted sections of the green energy industry against each other, with energy suppliers including Octopus supportive and wind farm developers and manufacturers opposed.
RenewableUK, which represents the wind industry, has warned Mr Miliband that adopting such major reforms now will inject uncertainty into investment decisions and potentially derail his target to make the power grid “net zero” by 2030.
In the coming weeks, it is understood that Whitehall officials are planning to consult further on the pricing proposals – which are part of the Government’s review of electricity market arrangements (REMA) – including by holding feedback discussions with industry representatives.
Rachel Fletcher, of Octopus Energy Group, said: “The Government currently shields manufacturers from some of the costs of our inefficient energy system.
“With zonal pricing, manufacturers will avoid these costs – in fact, factories in Scotland and the North of England will benefit from some of the cheapest power in Europe.”
On Friday an aide to Mr Miliband said the Energy Secretary’s priorities were “to ensure energy security with our drive for clean power, to protect consumers and industry, and to secure investment into our energy system”.
A government spokesman said: “In an unstable world, the only way to guarantee our energy security andprotect consumersfrom future energy price shocks is by moving towards homegrown power.
“We are reviewing responses to the consultation on reforming electricity markets, ensuring we focus on protecting billpayers.
“And our new industrial strategy will deliver long-term, sustainable growth right across the UK by supporting our industries and driving private investment into our economy.”
