Targeted electrification discount scheme could slash cost of industrial heat by up to 80%

Electrify Industry is the industrial electrification sector’s representative body representing industrial, manufacturing stakeholders concerned with, within the supply chain of and those in favour of industrial electrification. It is part of Make UK, collectively representing over 20,000 companies of all sizes, from start-ups to multi nationals, across engineering, manufacturing, technology and the wider industrial sector.

The policy approach to electrification and reducing electricity prices has, to date, been patchwork and the disincentives to electrify are rapidly expanding. Manufacturers urgently require a reduction in the cost of ownership for electricity-based heat, and a long-term vision for reduction of punitive policy and grid costs.

An estimated 80% of manufacturers can electrify (104,000). Businesses who want to electrify are currently experiencing:

• An exorbitant spark gap versus their nearest market competitors.
• Excessive grid infrastructure delays with high costs for connection upgrades, and low transparency.
• Competition for energy transition skills.

The report can be downloaded here.

Critical recommendations:

1. Immediately introduce a Targeted Electrification Discount scheme – reduce the relative cost of ownership for electricity-based heat technologies for manufacturers fuel-switching from natural gas and oil, for at least 10 years.
2. Reform the electricity pricing system – provide long-term confidence for investment and reduce inflation by forming a new approach, which shares all policy costs and network charges across general taxation.
3. Introduce a clear, long-term Strategy for Industrial Electrification – whether separate to, or integrated within, the Industrial Decarbonisation Strategy.

Complementary recommendations:

4. Accelerate grid infrastructure and connection reform for industrial demand, prioritising and protecting existing manufacturing.
5. Keep flexibility incentives separate but aligned to electrification policy, providing guidance on ‘the future of a site’ for manufacturer’s electrifying.
6. Develop a coordinated supply chain strategy, enabling growth opportunities and robust logistics.
7. Integrate skills policy with industrial electrification objectives and strategy, ensuring a just transition.

Solution one: Targeted Electrification Discount Scheme savings calculations

Energy-intensive industrial site, paper industry:

• Electric boiler: up to 57% savings, from £690,000 down to £300,000 per month on average.
• Heat pump: up to 44% savings, from £580,000 down to £325,000 per month on average.

Large site, chemical industry:

• Electric boiler: up to 75% savings, from £1 million down to £256,000 per month on average.
• Heat pump: up to 60% savings, from £715,000 down to £287,000 per month on average.

Medium site, brewery industry:

• Electric boiler: up to 80% savings, from £766,000 down to £153,000 per month on average.
• Heat pump: up to 75% savings, from £612,000 down to £153,000 per month on average.

Please refer to pages 12-13 in the report.

Solution two: Rebalancing non-commodity costs

• For the long term, reform the electricity pricing structure to allow current and future costs for non-commodity items to be shared across general taxation, via the progressive and modern tax system in Britain. This would allow the cost to be shared by all those who benefit from the public services the levies provide and secure the longevity of Britain’s manufacturing base for a growth economy and national security.
• Take an approach to non-commodity costs which allows long-term investment certainty and statement of such an approach would increase confidence and uptake of any solutions introduced in the meantime, if bridging policy is needed to secure industry in the short-medium term.
• If network charges are to be addressed separately, then the historic mechanism of placing policy charges on industrial bills must still be restructured at a minimum - as Make UK recommended this year.

The spark gap:

The spark gap is the difference in cost between producing heat or energy with electricity, versus natural gas (or oil). The cost of producing energy with any heat technology (e.g. a gas boiler, a heat pump, an oil-fired thermal heater, an electric boiler) is made up of the price of its energy feed and the conversion efficiency (the amount of heat energy produced by the technology per unit of electricity/gas/oil input). Despite electric heat technologies consistently being more efficient than gas technologies, the spark gap is roughly 3.7 to 4.3 times more than gas in Britain but reached 4.7 in spring 2025.

Industrial efficiency:

• Greater energy and fuel savings can be achieved with digitised industrial electric heat compared to traditional natural gas heat.
• Typical examples include electric boilers at 99-100% efficiency, induction heaters at over 90% efficiency, and heat pumps at 200-500% efficiency (depending on the
  process temperature). 
• Standard gas boilers typically range from 80-90% efficiency, with higher efficiencies less frequently achieved.
• At least 11 industrial processes currently reliant on fossil fuels could be electrified, with seven of these accounting for approximately 11 million tonnes of CO₂ emissions annually.