UK food and drink manufacturers continue to struggle with persistently high energy costs. Between 2021 and 2023, UK non-domestic electricity price more than doubled from 13.91 pence/kWh to 28.39 pence/kWH; while gas prices virtually tripled over the same period (see Figure 1). This so-called “energy crisis” was triggered by businesses coming live as countries re-opened after the pandemic, leading toa global supply constraint that was further intensified by geopolitical shocks such as Russia’s invasion of Ukraine.
Although prices for gas and electricity have eased since early 2024, they remain now at twice pre-crisis levels. Based on recent data from the International Energy Agency (IEA), the average industrial energy price in the UK was the highest among all 28 reporting countries. These countries collectively account for three-quarters of global energy demand. In particular, the industrial electricity price in the UK was 63% higher than in France and 47% higher than in Belgium (see Figure 2).The same pattern held the year before, when UK prices were reported to be four times those of the USA and Canada.
These persistently high energy costs, combined with other inflationary pressures such as the 8% uptick in agricultural commodity prices and increased National Insurance contributions for employees, have tightened the already low margins for UK food and drink manufacturers. According to the FDF State of Industry Report Q22025, food manufacturing production costs are expected to rise by 6.3%. While food manufacturers have thus far absorbed much of the blow, due in part to retail price matching, the latest FDF survey revealed that 76% of UK manufacturers have now decided to pass their increased costs to customers. Many are expecting to raise selling prices by 4.4% over the next year.
This pattern is reflected in the UK food and non-alcoholic beverage inflation rates, which reached5.1% in August 2025 according to official statistics and is projected to rise further to 5.7% by year end. This figure is significantly higher than the overall rate of UK inflation at 3.8% and very much underpins the nation’s cost-of-living crisis.
The mechanics behind these chain effects are clear. Food and drink manufacturing is highly energy intensive. SmartParc analysis indicates that energy bills account for 31% of total operational costs for UK food manufacturers. Processes such as baking, frying, and pasteurizing require a continuous heat-cooling loop and power loads. Subindustries such as processed meat and seafood, vegetable oils, and bakeries are among the most electricity-intensive in food manufacturing(see Figure 3).
At the same time, the sector relies heavily on gas, half of which is supplied externally from countries like Russia and USA. As BCG analysis suggests, reliance on foreign-sourced energy sources undermines the UK’s energy security and has a downstream impact on supply chain. The 2021-2024 energy crisis has highlighted the urgent need for UK food and drink manufacturers to shift towards renewables. This effort is also incentivized by the national goal to achieve net zero emissions by 2050. Currently, the UK food and drink sector accounts for 21% of national carbon emissions, 55% of which is from food processing, manufacturing, and transport.
Much of the food and drink manufacturing sector’s reluctance to embrace renewables can be attributed to high initial CapEx. However, recent technological innovations in cell efficiency and bifacial modules have flattened the cost differentials between renewables and non-renewables. Based on the global-weighted average Levelized Cost of Energy (LOCE), which measures the cost efficiency of building and operating a power generation plant over its lifetime, solar and wind power are shown to currently be twice as cost-effective as coal (see Figure 4). In fact, solar photovoltaics have become the cheapest energy at £13.6 per kWh annually in OECD countries.
At SmartParc in Derby, we are currently rolling out PV installation across all unit roofs on our campus, with 10,842xpanels already installed as part of phase one. Power generation commenced in September 2025 and this initial phase alone will deliver an annual capacity of4.29GWh or 26.4% of campus-wide annual energy demand. All power generated will be used within the park, reducing reliance on external energy grid and saving320 tons of CO2 per annum (i.e. the equivalent of planting 30,099 trees). This installation, in addition to our centrally operated low-carbon energy network,is part of our wider effort to decarbonize the food manufacturing sector and promote green transformation in the UK.
To lock in this momentum, government and industry should align on a clear, long-term policy package – including renewable power tax incentives and grants for heat recovery technology and/or district heating. Pairing these with carbon pricing and mandatory energy data disclosure would promote investment, cut exposure to volatile imports, and make green power the default for UK food and drink manufacturing.
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