Energy Prices: Energy-intensive Industries

Lord Spellar Excerpts

Tuesday 6th May 2025 Lords Chamber

[Lord Hunt of Kings Heath (Lab)]

My Lords, I am grateful to the noble Lord and thank him for the work he does on behalf of so many important industry companies. He will know that we are in discussion with organisations such as his own and many other business and industry interests. As he said, we hope to publish the industrial strategy within the next few weeks. I cannot give him any guarantees as to what will be in it, but I assure him that I understand the pressures on our industries, and we are considering those very carefully in government.

[Lord Spellar (Lab)]

But, my Lords, the fundamental flaw in the pricing system introduced at the time of privatisation is that the average price of electricity was determined by the marginal price of the last kilowatt, which is normally produced by gas and, as the Minister rightly said, is therefore driven by international gas prices. That is not a law of physics or engineering but a political decision. Should we not be examining that to rebalance the pricing system to the benefit of industry and indeed consumers?

[Lord Hunt of Kings Heath (Lab)]

My Lords, the electricity market operates on the principle of marginal pricing, whereby the wholesale price of electricity is set by the last technology needed to meet overall demand. That is why gas tends to set the price for the market. We are of course looking at this as part of our REMA review that I have referred to. But the faster we decarbonise our energy and move towards clean power, the less gas will have the influence it does in the current system.