UK steel industry provides Government solution to address uncompetitive electricity prices for foundation sectors

15 March 2025

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, 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.”

Contact details    

Louise Young, Campaigns and Engagement Manager, UK Steel 07388 370176 | Lyoung@makeuk.org

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 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.