Industrial Electricity prices

A barrier to growth, competitiveness, and profitability

As the steel industry is aiming to fully electrify through investment in new additional electric arc furnaces, electricity prices become even more crucial to the industry’s competitiveness, profitability, and future success. 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.

September 2024: £37 million in UK steel electricity costs revealed

In September 2024, UK Steel revealed stats showing that that UK steel producers pay up to 50% more than competitors in France and Germany, adding £37 million to UK steel electricity costs. The price disparity is predominantly driven by higher UK wholesale costs and partly greater network charges.

March 2025: tackling wholesale costs proposed through Contract for Difference

In early 2025, we commissioned an independent consultancy to analyse the opportunities to tackle wholesale electricity costs - which are now the largest part of what makes up industrial electricity prices, and were identified as a key problem in UK Steel’s September electricity report

In the March 2025 report, UK Steel recommends a new mechanism to drastically reduce bills and develop a more competitive business landscape for the steel industry - a two-way electricity Contract for Difference.

 

Introduce two-way Contract for Difference and discount locational pricing models

 

Compensate industry for 90% of its network charges, matching French/German support levels

 

Track industrial energy price disparities between countries

Wholesale market mechanism: a new two-way CfD
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 proposed two-way 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.
By fixing electricity prices to French and German prices (whichever is lowest) for the steel sector, increasing global competitiveness.
Enabling long-term planning and investment in low-carbon technologies such as Electric Arc Furnaces.
With the sector paying back the Government when prices fall below the agreed strike price. The mechanism will also incentivise flexibility and reduce overall energy system costs.
Electricity intensity

Electricity intensity

Steel production and processing is a highly energy intensive process, with energy making up a substantial proportion of the cost of converting globally priced raw materials into finished steel products for consumers. Steel production’s energy-intensive nature leads to high electricity consumption, and these 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.

Paying up to 50% more

Paying up to 50% more

The average price faced by UK steelmakers for 2024/25 is £66/MWh compared to the German price of £50/MWh and French price of £43/MWh. This indicates a price disparity of £16-22/MWh, meaning the industry will pay £37-50 million more for their electricity than European competitors.

Higher wholesale prices drive the price gap

Higher wholesale prices drive the price gap

The main driver of the price disparity is now wholesale electricity costs, driven by the UK’s reliance on natural gas power generation. Further reforms are needed to reduce wholesale electricity prices for the steel industry, such as an ARENH-like industry tariff or wholesale market reforms.

Network charges still a barrier

Network charges still a barrier

The previous Government introduced a 60% compensation for network charges, which is lower than the 90% offered by Germany and France, leaving industry facing network charges up ten times that of their European counterparts. The new Government can increase this to 90% and bring network charges in line with European competitors.

Future steel's needs

Future steel's needs

An electric arc furnace (EAF) uses roughly 0.5MWh of electricity per tonne of steel. When the industry has fully electrified, its consumption will roughly double, but the sites switching from blast furnace to EAF will see their power use almost quintuple. This is why we need affordable electricity now and in the future.