UK Steel - Submission to the Review of Electricity Market Arrangements: Second Consultation

May 2024

High electricity prices are consistently cited as harmful to the steel industry’s ability to decarbonise its production, a major impediment to investment, and detrimental to its immediate market competitiveness.

It is disappointing that the Government is abandoning reforms to marginal pricing, the split market option, and the Green Power Pool. UK Steel believes that these reforms should be further analysed and reviewed to assess their ability to deliver lower electricity prices for consumers.

The Government has made it clear in the consultation document that it will solely focus on improving system costs. It is silo-thinking merely to focus on the decarbonisation of the electricity system rather than considering how lower electricity prices for certain consumer groups could significantly improve their ability to decarbonise. DESNZ justifies this by stating, “it is unclear what long-term upside there would be for those targeted compared to the counterfactual that aims for lower prices overall, and where particular groups of consumers are already targeted through existing schemes” (p37 Second Consultation Document). However, the existing schemes aim to reduce other elements of electricity pricing, i.e. network charges and policy costs, rather than wholesale prices. The reforms to marginal pricing might offer an opportunity to address wholesale prices and deliver more competitive power prices for industry as it seeks to decarbonise through electrification. We are therefore concerned that the Government has not considered the full benefit to particular consumer groups.