Electricity prices disadvantage UK steelmakers, solution proposed
UK Steel proposes a new mechanism to address uncompetitive electricity prices.
The organisation says that 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, meaning the country can pay 50% more than others. In addition, it is estimated that, with a switch to electric-arc furnaces, the sector’s electricity consumption will roughly double.
The report recommends introducing a two-way Contract for Difference (CfD) mechanism, which 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.
UK Steel says that the proposed CfD is a practical and future-focused solution to support the UK steel sector and drive its green transition.
Frank Aaskov, Director, Energy and Climate Change Policy, says, ‘The British steel industry is at a severe competitive disadvantage due to long-term high electricity costs…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.’
The UK Steel report is available to read here.
