Today, UK Steel publishes new industrial electricity price data
revealing that Britain's steelmakers still face significantly
higher power costs than their European competitors despite
Government moves to tackle the problem, which undermines
competitiveness and investment.
New data shows that in 2025/26 UK steel producers will pay up to
25% more for electricity than in France and Germany, resulting in
an additional £26 million in costs per year.
With the steel industry investing in new electric arc furnaces to
further its shift to electrification, competitive electricity
prices will be critical to its competitiveness, long-term
success, and its long-term survival. Electricity is a fundamental
input to steel production.
The industry report sets out a clear pathway to close this gap:
- Introduce two-way Contracts for Difference (CfDs) for
wholesale electricity, aligning UK industrial power prices with
those in France and Germany, as recommended by independent
consultancy Baringa.
- Ensure the uplift to 90% compensation for network charges is
backdated to April 2025, avoiding another year of excessive costs
for UK producers.
Gareth Stace, Director-General at UK Steel,
said:
“The Government has already taken steps to tackle
uncompetitive industrial power prices, which have been greatly
welcomed by the industry. However, our report shows that
Britain's steelmakers are still paying millions more for
electricity than our European competitors.
“The UK steel industry has a hand tied behind its back
as it faces electricity prices up to 25% higher than its
European competitors, let alone its global counterparts.
Uncompetitive power prices pose a threat to jobs, future
investment, and our Net Zero ambitions. Our report shows there is
now a straightforward solution with a two-way CfD mechanism and
swift backdating of network charge relief, the Government can
finally eliminate the disparity in industrial electricity
prices.
“The prize is enormous. By securing competitive power prices,
the UK can build a modern, low-carbon steel industry that
underpins growth in clean energy, infrastructure, and
manufacturing for decades to come.”
About the Closing the Power Price Gap: Securing the
Future of UK Steel report:
- The average price faced by UK steelmakers for 2025/26 is
£59.48/MWh compared to the German price of £52.04/MWh and the
French price of £47.76/MWh. This indicates a price disparity of
£7-12/MWh, meaning the industry will pay 14-25% more for their
electricity than European competitors.
- The primary driver of the price disparity is now wholesale
electricity costs, which are largely driven by the UK's reliance
on natural gas for power generation. Further reforms are needed
to reduce wholesale electricity prices for the steel industry,
such as a two-way Contracts for Difference (CfDs) for wholesale
electricity, as recommended by independent consultancy Baringa.
- 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.
- In the Industrial Strategy, the Government has increased
compensation for network charges to 90%, in line with European
competitors, following recommendations from UK Steel. UK Steel
estimated that this will reduce power prices by approximately
£6.5/MWh and save the steel industry £14.5 million per
year.
- Currently, the UK steel industry's electricity use is
equivalent to that of 800,000 homes, and an electric arc furnace
uses approximately 0.5 MWh of electricity per tonne of steel.
- 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 [...]”.
About UK Steel: UK Steel is the trade
association for the UK steel industry. It represents all the
country's steelmakers and most downstream steel processors.
The UK steel sector:
- Produced 4Mt of crude steel in 2024 and supplied 30% of the
UK's annual demand of 9.2Mt
- Employs 36,800 people directly in the UK and supports a
further 46,000 in supply chains
- The median steel sector salary is £39,245, 24% higher than
the UK national median and 33% higher than the regional median in
Wales, and Yorkshire & Humberside where its jobs are
concentrated
- Directly contributes £1.7 billion to UK GVA and supports a
further £2.2 billion
- Directly contributes £3.1 billion to the UK's balance of
trade
- 96% of steel used in construction and infrastructure in the
UK is recovered and recycled to be used again and again
