UK Steel can reveal that the Government has adopted three key
recommendations for its newly unveiled modern Industrial Strategy
to help tackle industrial electricity prices:
- Increase of Network Charging Compensation to 90% from 2026,
matching what is provided in Germany and France – This will
reduce power prices by an estimated £6.5/MWh and save the steel
industry £14.5m per year.
- Continuation of the indirect compensation scheme, which
compensates the steel industry for the carbon taxes paid via the
electricity bills – If this had not been renewed, industrial
electricity would have increased by £20/MWh and increased
electricity bills by £45m for the steel sector.
- British Industrial Competitiveness Scheme from 2027, which
will provide an exemption for Renewables Obligation, Feed-in
Tariffs and the Capacity Market for less electro-intensive
businesses – UK Steel estimates that this will reduce power
prices for eligible manufacturers by £43/MWh, which the
Government states would represent up to 25% of manufacturers
electricity bills.
The uplift to Network Charging Compensation from 60% to 90% in
line with what is provided in Germany will reduce industrial
electricity prices by £6.5 per megawatt hour (MWh) for the steel
industry – an incredible £14.5 million per year.
Despite this impactful cut to electricity costs, there
remains a £10-16 per MWh difference between European electricity
costs, which slaps £36 million per year on steel bills.
The reason for the energy intensive industries disparity is
wholesale electricity costs, driven by the UK's reliance on
natural gas power generation.
Tackling network charges, indirect compensation and the new
British Industrial Competitiveness Scheme are welcome steps on
the road to creating affordable energy and an effective business
environment. UK Steel has the solution to eliminate industrial
electricity price disparities between the UK and its European
competitors. In collaboration with the respected energy
consultancy Baringa, UK Steel proposed the introduction of a
two-way Contract-for-Difference to peg wholesale prices to those
in France and Germany, thereby eradicating the price disparity.
Gareth Stace, Director General at UK Steel,
said:
“The Government has rightly taken action to reduce industrial
electricity prices and modelled its new policies on UK Steel's
solutions. UK power prices have for too long damaged the
profitability and growth of the steel industry hand over fist,
driving away investment and opportunities decarbonise our
production.
“The Industrial Strategy is a step in the right direction
towards competitive electricity prices and a better, more
effective business landscape, but we are climbing slowly up the
foothills of the mountain we need to climb. This is an
important milestone, but we are not out of the trenches yet.
The Industrial Strategy must be the first of many changes if
we are to fully unlock the potential of the UK steel industry to
back the growth and stability of our economy.”
Notes to editors
Electricity price disparity:
- UK Steel's electricity research and proposals to cut the
electricity price disparities can be found here: https://www.uksteel.org/electricity-prices
- 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 that of 800,000 homes, and an electric arc furnace
uses approximately 0.5 MWh of electricity per tonne of steel.
- 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 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 to 10
times that of their European counterparts.
- Today, the Government has increased this to 90% and brought
network charges in line with European competitors, following UK
Steel's recommendations.
- 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 [...]”.
- UK Steel, its members, and Baringa published a report in
March 2025 on how to create
competitive electricity prices by introducing a two-way
Contract-for-Difference to peg wholesale prices to those in
France and Germany. A similar scheme is already implemented in
Italy and France.
The two-way Contract for
Difference mechanism, proposed by UK Steel
to tackle wholesale costs, will:
- Provide price parity with the lowest-cost European
competitors by fixing electricity prices for the steel sector,
increasing global competitiveness.
- Protect against price volatility, enabling long-term planning
and investment in low-carbon technologies such as Electric Arc
Furnaces.
- 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.
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
