Manufacturing is the most energy-intensive sector in the UK economy. Most manufacturing sites above 100 kW MIC are half-hourly settled, enabling demand management. Climate Change Agreements reduce Climate Change Levy liability for eligible sectors. The Industrial Energy Transformation Fund supports capital investment in decarbonisation. This guide covers the consumption profile and procurement levers for UK manufacturers.
Last reviewed: 12 May 2026
The Manufacturing Energy Profile
Manufacturing accounts for a substantial share of total UK energy consumption. DESNZ's Energy Consumption in the UK publication tracks industrial energy use, which encompasses process heat, motors and drives, compressed air, refrigeration, and building services. The balance across these categories varies significantly by manufacturing sub-sector, but process heat and motor-driven systems together typically account for 60 to 80% of total industrial energy use.
Unlike commercial buildings, where energy use is driven primarily by building services and occupant behaviour, manufacturing energy demand is driven by production processes. Energy intensity - the energy consumed per unit of output - is the primary performance metric for industrial energy management, not energy use per square metre.
Process Heat
Process heat is the largest single energy category in most manufacturing operations involving heating, drying, forming, or chemical conversion. Applications include kilns in ceramics and brick manufacturing, furnaces in metal forming, steam in food and beverage processing, drying systems in paper and textile production, and pasteurisation in dairy and drinks manufacturing.
Gas is the dominant fuel for process heat in UK manufacturing. The decarbonisation of process heat is one of the most technically and economically challenging aspects of industrial decarbonisation, as many high-temperature processes cannot easily be electrified with current technology. The Climate Change Committee (CCC) has documented this challenge in its industrial sector analysis, identifying hydrogen and carbon capture as the primary long-term solutions for high-temperature process heat decarbonisation.
For manufacturers with lower-temperature process heat requirements (below 100C), electrification via heat pumps is increasingly viable. DESNZ's Industrial Energy Transformation Fund (IETF) has funded heat pump installations in food and beverage manufacturing as part of its decarbonisation capital grant programme.
Compressed Air
Compressed air is one of the least efficient energy systems in manufacturing. Generating compressed air from electricity typically involves losses of 90% or more: most of the electrical energy input is converted to heat rather than useful pressure. Despite this, compressed air is ubiquitous in manufacturing because of its safety, flexibility, and controllability.
Compressed air system losses fall into three categories: generation inefficiency, distribution losses (leakage), and inappropriate use. Leakage in poorly maintained compressed air networks can account for 20 to 30% of total compressed air output. A compressed air leak audit followed by a systematic repair programme is typically one of the highest-return energy efficiency investments available in manufacturing.
Variable speed drives (VSDs) on compressor motors allow the compressor to modulate output to match demand rather than running at full capacity regardless of demand. VSD retrofits on fixed-speed compressors in sites with variable demand profiles reduce electricity consumption by 20 to 50% on the compressor system.
Motors, Drives, and Refrigeration
Electric motors drive pumps, fans, conveyors, mixers, and production machinery across manufacturing. Motors collectively represent the largest single end-use of electricity in UK manufacturing. High-efficiency motor specification (IE3 or IE4 under EU/UK standards) and VSD control where load variability exists are the primary efficiency levers.
Refrigeration is significant in food manufacturing, cold chain logistics, and pharmaceutical manufacturing. The principles are the same as in commercial refrigeration: maintenance, temperature set-point optimisation, and system design efficiency all affect electricity consumption.
Half-Hourly Settlement and Maximum Import Capacity
Manufacturing sites with electricity supply points above 100 kW Maximum Import Capacity (MIC) are subject to mandatory half-hourly (HH) settlement. Half-hourly settlement means consumption is recorded in 30-minute intervals, and the electricity unit rate includes Time of Use (ToU) elements - typically a higher price during peak demand periods (commonly 4pm to 7pm on weekdays) and a lower price at off-peak times.
For manufacturers with flexible production scheduling, HH settlement creates an opportunity. Shifting electricity-intensive processes away from peak ToU windows reduces both energy cost (lower unit rate) and demand charges. Demand charges on HH-settled sites are typically based on the peak 30-minute demand reading in a month or quarter. Avoiding demand spikes by staggering equipment start-up sequences and scheduling high-load processes during off-peak windows reduces demand charges directly.
Sites approaching but below 100 kW MIC may have been voluntarily moved to HH settlement. Confirming settlement type and reviewing whether the ToU structure is advantageous or disadvantageous given the production pattern is an important step in energy management for manufacturing sites of any size.
Climate Change Agreements and Climate Change Levy
The Climate Change Levy (CCL) is a tax on energy supplies to non-domestic customers. It applies to electricity, gas, and other fuels used in business. For manufacturing businesses in eligible energy-intensive sectors, Climate Change Agreements (CCAs) provide a 92% reduction on electricity CCL and 89% on gas CCL in exchange for meeting sector-specific energy efficiency targets agreed with the Environment Agency. A new CCA scheme phase opened on 1 January 2026 and runs to 2033.
CCAs are sector-level agreements between DESNZ and trade associations. Individual businesses join through their sector association's umbrella agreement and commit to energy efficiency improvement targets in return for the CCL discount. Sectors with active CCA umbrella agreements include ceramics, glass, chemicals, food and drink, paper, metals, and several others.
A manufacturing business in an eligible sector that is not participating in its sector CCA is paying full CCL rates unnecessarily. The CCL rate on electricity from 1 April 2026 is 0.801p/kWh (a rise from the 0.775p rate that applied from April 2024 to March 2026); on a site consuming 1 million kWh annually that represents an £8,010 annual cost before any gas savings, the bulk of which can be reclaimed by a CCA holder.
The Industrial Energy Transformation Fund
The Industrial Energy Transformation Fund (IETF) provides capital grant support to energy-intensive industrial businesses investing in energy efficiency and low-carbon heat decarbonisation projects. DESNZ administers the fund.
IETF grants have supported projects including heat recovery systems, heat pump installations, waste heat utilisation, motor and drive upgrades, and fuel switching from gas to lower-carbon alternatives. Grant rates and eligible project types vary by funding phase; DESNZ publishes current phase details and application guidance on gov.uk.
For manufacturers considering capital investment in energy equipment, checking IETF eligibility before procurement is advisable. IETF grant support can materially reduce the capital cost and shorten the payback period of qualifying projects.
Procurement Levers for Industrial Energy Buyers
Flexible purchasing contracts allow larger I&C customers to purchase electricity in tranches over time rather than locking all volume at a single point. This can be advantageous when wholesale prices are volatile, as it reduces the risk of buying at a peak. Flexible contracts require active management and market knowledge, and are typically offered to sites with annual electricity spend above approximately £500,000.
Power Purchase Agreements (PPAs): A PPA is a long-term supply contract with a renewable electricity generator, either directly (corporate PPA) or via a sleeved arrangement through a licensed supplier. PPAs offer price certainty over the contract term and support renewable energy procurement claims. They are increasingly accessible to mid-sized industrial customers.
Demand-side response (DSR): DSR involves reducing or shifting electricity consumption in response to grid signals, typically in exchange for payment from the system operator or a DSR aggregator. Manufacturing sites with interruptible loads (pumping, refrigeration, compressors) can participate in DSR programmes. The financial return depends on site flexibility and prevailing grid conditions.
Editorial disclaimer: This page provides general guidance only and does not constitute energy, financial, or legal advice. CCL rates, CCA terms, and IETF funding details change. Always verify current rates and programme eligibility directly with DESNZ and your sector trade association.
Frequently asked questions
What is half-hourly settlement and does my manufacturing site need it?
Half-hourly settlement means your electricity consumption is recorded in 30-minute intervals. Sites with a Maximum Import Capacity above 100 kW are subject to mandatory HH settlement. Most significant manufacturing operations exceed this threshold. HH settlement enables Time of Use pricing, which creates an opportunity to reduce costs by shifting high-load processes away from peak demand windows.
How does a Climate Change Agreement reduce my energy costs?
A CCA provides a 92% reduction on electricity CCL and 89% on gas CCL for businesses in eligible energy-intensive sectors that meet agreed energy efficiency improvement targets. The main CCL rate on electricity is 0.801p/kWh from 1 April 2026, rising to 0.827p/kWh from 1 April 2027; on a high-consumption manufacturing site this produces a significant annual saving. Participation is through your sector trade association's umbrella agreement, with a new CCA scheme phase running from January 2026 to 2033.
What is the Industrial Energy Transformation Fund?
The IETF is a DESNZ capital grant programme supporting energy-intensive industrial businesses investing in energy efficiency and decarbonisation projects. Eligible projects have included heat recovery, heat pumps, motor upgrades, and fuel switching. DESNZ publishes current phase details and application guidance at gov.uk.
What is compressed air leakage and how much does it cost?
Leakage in poorly maintained compressed air distribution networks can account for 20 to 30% of total compressed air output. Since compressed air generation from electricity is inherently inefficient, leakage directly translates to electricity waste. A compressed air leak audit and systematic repair programme is typically one of the highest-return energy efficiency investments available in manufacturing.
What is a Power Purchase Agreement for industrial electricity buyers?
A PPA is a long-term electricity supply contract with a renewable generator, either directly or via a licensed supplier. It provides price certainty over the contract term and supports renewable energy procurement. PPAs are increasingly accessible to mid-sized industrial customers and can be structured as fixed-price, index-linked, or blended arrangements depending on the buyer's risk preference.
How we verified this
This article draws on the published guidance from Ofgem, the Department for Energy Security and Net Zero, and the relevant primary legislation listed in the Sources section. No aggregator or supplier-produced content was used as a primary source.
