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.
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.
Currently, UK steelmakers pay almost 40% more for their electricity prices than steel producers in France, totalling £41m in 2025/26. While the increased compensation announced today will reduce this to a 25% surcharge, the relief of backdating this NCC support to 2025 would have been a significant step toward alleviating wider pressures.
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.
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.