New report: Opportunity for Government to reduce electricity prices to uplift steel industry
2 September 2024
Today, UK Steel's new report on industrial electricity prices, featured in The Times, demonstrates that a sizable gap remains between what UK steelmakers and their European competitors pay. The report also sets out three recommendations to bring electricity prices in line with European counterparts.
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.
The report finds 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. UK Steel makes three recommendations to cut prices:
- Compensate industry for 90% of its network charges, matching French/German support levels
- Undertake wholesale market reforms and discount locational pricing models
- Track industrial energy price disparities between countries
UK Steel Director General, Gareth Stace, said:
“This new Government has already set out its willingness to deliver for the steel industry, and it now has the opportunity to bring industrial electricity prices in line with our competitors.
“For too long, the UK steel industry has been crippled by high industrial electricity prices, placing a heavy burden on the industry’s competitiveness, profitability, and ability to invest in future growth. The average price faced by UK steelmakers for 2024/25 is £66 per MWh compared to the French price of £43/MWh and the German £50/MWh. That’s a price gap of up to £22/MWh, meaning we pay £37-50 million more for our electricity this year than our European competitors.
“Steel is integral to the new Government’s ambitions for the UK, from the renewable energy rollout through GB Energy to infrastructure developments and increased housebuilding, which all require and rely on steel. Lower power prices are crucial to unlocking the success of the UK Steel industry, enabling steel to be the backbone of a strong and thriving British economy.
About the Industrial Electricity Prices – A barrier to growth, competitiveness, and profitability report:
- 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.
- 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.
- 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.
- 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.
- The UK steel industry’s electricity use is equivalent to 800,000 homes
- An electric arc furnace uses roughly 0.5MWh of electricity per tonne of steel
For further information about the steel industry, please see the UK Steel Election Manifesto, 2024 press pack, Why the UK needs a strong steel sector or the 2024 UK Steel Key Statistics report.