The £150 billion UK grid upgrade: what does it mean for businesses electricity prices?
For larger businesses with significant electricity demand, the news shines a spotlight on the financial risk of relying heavily on the grid electricity and the potential value of investing in commercial solar PV, battery storage and smart energy management. UK electricity prices have risen sharply in recent years as global energy shocks have increased pressure on gas and electricity markets.
At the same time, the UK are beginning a £150 billion transformation of its electricity grid to improve energy security, connect more renewable generation and reduce dependence on fossil fuels.
For commercial businesses, ask yourself… how much control should we take over our own energy costs and electricity supply.
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WHY HAVE UK ELECTRICITY PRICES RISEN SHARPLY?
UK prices have risen sharply because the electricity market remains exposed to volatile international gas prices, while global energy shocks have increased the cost of energy. Gas-fired generation also plays an important role in setting UK prices of energy. Gas-fired generation also plays an important role in setting UK electricity, meaning changes in international gas markets can feed through into electricity costs.
The energy shocks following Russia’s invasion of Ukraine demonstrated how quickly international events can affect energy markets. More recent geopolitical instability has continued to create uncertainty around global energy prices.
For businesses, particularly those operating energy-intensive sites, this can make electricity costs harder to predict and manage.
WHAT ARE ENERGY SHOCKS?
Energy shocks are sudden events that cause significant changes in the availability or cost of energy. They are caused by geopolitical conflict, disruption to energy supplies, changes in global demand or sharp movements in fossil fuel prices.
The UK remains exposed to international energy markets because gas continues to play an important role in the electricity generation.
This means business can experience higher energy costs even when nothing has changed within its own operations.
HOW DO GLOBAL GAS SHOCKS AFFECT UK BUSINESSES?
Global gas shocks can increase the cost of electricity purchased from the grid, creating additional financial pressure for businesses with high energy demand.
For a large commercial organisation, electricity is often an essential operating cost. Higher energy prices can affect manufacturing, warehousing, refrigeration, heating, cooling, offices, logistics, and EV charging.
WHY IS THE UK INVESTING £150 BILLION IN THE ELECTRICITY GRID?
The UK is investing more than £150 billion in electricity transmission infrastructure to support increasing electricity demand, connect renewable generation and improve energy security.
Neso has estimated that around £64 billion of transmission investment will be required by 2030, with a further £89 billion needed beyond that. More than 4,000 miles of new power lines could also be required by 2041, alongside upgrades to existing infrastructure.
The investment reflects the scale of change taking place across the UK’s energy system. More electricity is being generated from wind and solar, whole electricity demand is expected to increase as businesses and consumers electrify transport, heating, and other activities. Neso expects electricity demand to increase more than 30% by the mid 2030s.
WHAT DOES THE £150 BILLION GRID UPGRADE MEAN FOR BUSINESSES?
The £150 billion grid upgrade means businesses are operating within a continuously changing electricity system where grid capacity, electricity demand and renewable generation are becoming increasingly important.
The upgraded network should eventually make it easier to transport renewable electricity around Great Britain and reduce constraint on renewable generation.
However, the transformation will take years. Business still needs to manage their electricity consumption, grid reliance, and energy costs.
This is where on-site generation can provide an additional layer of energy resilience.
WHY DOES THE UK ELECTRICITY GRID NEED UPGRADING?
The UK electricity grid needs upgrading because the existing network was largely developed for an older energy system and is increasingly being asked to transport electricity from new renewable generation to areas of high demand.
In some parts Britain, renewable generation is already being constrained because there is insufficient transmission capacity to move all available electricity to where it is needed.
Grid constraints can increase system costs because renewable generation may have to be curtailed while other generation is brought online elsewhere.
The long-term solution is a combination of grid investment, renewable generation, energy storage, demand flexibility, and smarter energy management.
OUR EXPERIENCE WITH COMMERCIAL ENERGY PROJECTS
We’ve helped businesses assess and implement commercial solar PV and battery storage based on their individual electricity requirements.
COULD THE £150 BILLION GRID UPGRADE REDUCE FUTURE ENERGY SHOCKS?
The grid upgrade is upgrade is intended to make the UK energy system more resilient and less exposed to fossil fuel price shocks by enabling more renewable electricity to be generated and transported around the country.
Neso modelling suggests that a more fully decarbonised UK energy system could be significantly less exposed to the economic impact of a future fossil-fuel energy shock.
However, business do not need to wait for the national grid transformation to take advantage of renewable energy. A Commercial organisation can already generate electricity on-site through commercial solar PV.
FREQUENTLY ASKED QUESTIONS ABOUT UK ELECTRICITY PRICES AND ENERGY SHOCKS
Why are UK electricity prices linked to gas prices?
UK electricity prices can be influenced by gas prices because gas-fired power stations frequently play an important role in setting the electricity market price. This means international gas price movements can affect the cost of electricity purchased by UK businesses.
Can solar protect a business from energy shocks?
Commercial solar can reduce a business’s exposure to grid electricity prices by generating electricity on-site. However, the financial value of a solar PV system depends heavily on how much of the electricity a business can use as it is generated.
Businesses with strong daytime electricity demand may be able to use a significant proportion of their solar generation directly, reducing the amount of electricity they need to purchase from the grid. Combining solar PV with battery storage can provide additional flexibility by storing surplus generation for use later, helping businesses make better use of their on-site renewable energy.
Is battery storage worth installing with commercial solar?
Battery storage can increase the amount of solar electricity a business can use by storing surplus generation for later. It can also form part of a wider energy management strategy for businesses with significant or variable electricity demand.
How can businesses improve energy resilience?
Businesses can improve energy resilience by reducing unnecessary energy consumption, increasing on-site generation, using battery storage and implementing smart energy management. The right combination depends on the site’s electricity demand, operational requirements and energy profile.
READY TO REDUCE YOUR BUSINESS'S RELIANCE ON THE GRID?
We provide commercial renewable energy solutions for businesses looking to reduce energy costs, increase renewable energy use and improve energy resilience.
Whether you are considering commercial solar PV, battery energy storage, EV charging infrastructure or smart energy management, understanding your current energy profile is the first step.
Talk to our renewable energy experts about your business’s on-site generation, and find out how a bespoke commercial renewable energy solution could help reduce your reliance on grid electricity, and electricity prices through our free online no-obligation consultation: https://excelenergy.co.uk/project-enquiry/