New research published today by UK Steel proposes developing a
new mechanism to fully address uncompetitive electricity prices
faced by the UK's steel industry.
UK industrial power prices are notoriously expensive, and UK
Steel's research shows that steelmakers pay up to 50% more than
Germany and France. New policy solutions are essential to
delivering affordable energy, securing industry competitiveness,
and strengthening the UK's steel production, thereby enhancing
economic resilience and national security.
Unlike many steel-producing countries - such as France, Italy,
Spain and the UAE - the UK does not have a mechanism to protect
energy-intensive industries (EIIs) from high wholesale prices.
The report recommends introducing a two-way Contract for
Difference (CfD) mechanism, which will:
1. Provide price parity with the lowest-cost European competitors
by fixing electricity prices for the steel sector, increasing
global competitiveness.
2. Protect against price volatility, enabling long-term planning
and investment in low-carbon technologies such as Electric Arc
Furnaces.
3. Share risk and reward, with the sector paying back the
Government when prices fall below the agreed strike price.
The proposed CfD is a practical and future-focused solution to
support the UK steel sector and drive its green transition. The
mechanism will be essential to the Government's Steel Strategy in
order to create a more competitive business landscape for the
steel industry, attract investment, and enable wider
decarbonisation.
Frank Aaskov, Director, Energy and Climate Change Policy
at UK Steel, said:
“Introducing a wholesale mechanism is an unrivalled opportunity
for the Government to keep its manifesto commitment to lower
industrial power prices, and UK Steel's report has the blueprint
to do it.
“The British steel industry is at a severe competitive
disadvantage due to long-term high electricity costs. The UK is
an outlier as European competitors benefit from government
wholesale price mechanisms that shield them from high power
price. As part of the Steel Strategy, uncompetitive electricity
prices must be addressed to ensure the steel industry can thrive,
secure thousands of jobs, and safeguard national steel production
as geopolitical turbulence increases.
“We cannot have electricity prices tying one hand behind our back
any longer. To attract investment, compete internationally,
decarbonise and protect jobs, the sector needs a practical,
market-driven solution that ensures the UK remains a viable place
for steel production. A successful Steel Strategy can deliver
this, from as early as next year.”
Notes to editors
- UK Steel commissioned the independent consultancy, Baringa,
to assess how to address uncompetitive electricity prices. The
report found that many steel-producing countries have mechanisms
to protect energy-intensive industries (EIIs) from wholesale
price volatility, and the UK stands out in not having implemented
such a policy.
- The embargoed report is attached to this press release.
- The previous Government introduced the British Industry
Supercharger, which reduced policy levies and network charges on
industrial electricity bills. As a result, higher UK wholesale
prices are now responsible for nearly three-quarters of the price
disparity between UK, French, and German industrial electricity
prices, with higher network charges being the cause for the
remaining quarter of the disparity.
- The report notes that despite its strategic importance, the
UK steel sector is disadvantaged by significantly higher and more
volatile wholesale electricity prices compared to European
competitors. To address this disparity and support the
sustainable future of the UK steel sector, a two-way Contract for
Difference (CfD) mechanism should be considered. This can be
implemented within the next year as part of the Government's
Steel Strategy.
- Steel production is incredibly electro-intensive, and power
costs can represent up to 180% of steel producers' Gross Value
Added (GVA) in the UK. With a switch to electric arc furnaces, it
is expected that the sector's electricity consumption will
roughly double. Currently, the UK steel industry's electricity
use is equivalent to 800,000 homes.
- The Labour Government stated in its manifesto that “British
industry is also held back by high electricity costs, which has
often made investing here uncompetitive. Labour's clean energy
mission will drive down those bills, making British businesses
internationally competitive [...]”. Today, UK Steel has provided
the Government with the mechanism for how it can deliver on its
manifesto commitment.
About UK Steel: UK Steel is the trade
association for the UK steel industry. It represents all the
country's steelmakers and most downstream steel processors.
The UK steel sector:
- Produces 5.6Mt of crude steel a year, equivalent to 70% of
the UK's annual requirement (annual demand of 7.6Mt in 2023, of
which 40% was met by domestically produced steel)
- Employs 33,700 people directly in the UK and supports a
further 42,000 in supply chains
- The median steel sector salary is £37,315, 26% higher than
the UK national median and 35% higher than the regional median in
Wales, Yorkshire, and Humberside, where its jobs are concentrated
- Directly contributes £1.8 billion to UK GVA and supports a
further £2.4 billion
- Directly contributes £3.4 billion to the UK's balance of
trade 96% of steel used in construction and infrastructure in the
UK is recovered and recycled to be used again and again.
