The government has been urged to reduce industrial electricity prices or risk the UK’s steel sector becoming uncompetitive with European manufacturers.
Trade body UK Steel has launched a report that finds a “vast chasm” between UK energy prices for industry and those in Europe.
It found that steelmakers in the UK pay nearly two times as much as those in Germany and France, partly due to higher grid connection costs in the UK. China has also been accused of dumping cheap steel on the global market to beat out competitors.
Steel production’s energy-intensive nature leads to high electricity consumption, and these costs can represent up to 180 per cent of steel producers’ gross value added (GVA) in the UK.
The warning comes just two months after Port Talbot, which is owned by Tata Steel, announced as many as 3,000 job losses, as well as a plan to transition to producing low-carbon steel with electric arc furnaces.
The switch to electric arc furnaces is expected to double the sector’s electricity consumption. The move is considered to be essential for the UK to meet its 2050 net zero carbon ambitions. Port Talbot is currently the UK’s largest single carbon-emitting facility, and its existing coal-powered blast furnaces are nearing the end of their effective life.
According to The Guardian, Tata Steel is considering shutting large parts of Port Talbot or mothballing them for years, leaving the remaining workers largely dependent on imported steel.
UK Steel said the government should compensate the industry for 90 per cent of its network charges in order to match French and German support levels. It also proposes tracking industrial energy price disparities between countries.
“Nearly every economy in the G20 boasts a strong steel sector, as our industry sits at the foundation of manufacturing and economic output,” said UK Steel director general Gareth Stace.
“As our steel sector fully switches to electric furnaces to reach net zero targets, we must not lose sight of how important electricity costs are in the move to green steel. We are on the cusp of the biggest transformation of the UK steel industry in decades.
“While the government should be applauded for implementing the British Industry Supercharger package, it doesn’t match what other governments provide for their steel industry. The average price faced by UK steelmakers for 2023/24 is £113 per MWh compared to the German and French prices of £61/MWh. That’s a price gap of £52/MWh, meaning we pay £117m more for our electricity this year than our European competitors.
“We are on the cusp of the biggest transformation of the UK steel industry in decades. The government needs to enact our four recommendations to make the business environment even more attractive to invest here in the UK. With truly competitive electricity prices, the UK’s electric arc furnace steel industry will be here to stay.”
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