British electricity prices, which were more than double those in France and Spain this spring, are posing a significant challenge to the UK’s efforts to transition to greener technologies, according to UK Steel. The lobby group’s analysis indicates that UK companies paid nearly £66/MWh for wholesale electricity in the second quarter of 2024—compared to France’s £27/MWh and Spain’s £28/MWh—highlighting a growing disparity in energy costs that could stifle investment in clean technology.
The divergence in electricity prices between the UK and its European counterparts has reached its widest gap since at least 2015. This presents a substantial hurdle for the incoming Labour government, which has committed £3 billion in subsidies to support the steel industry’s shift to electric technology. The situation is critical as Tata Steel, a major player in the industry, is set to close one of its blast furnaces at Port Talbot in south Wales, with plans to transition to an electric arc furnace. This move, however, comes with the potential loss of 2,800 jobs, sparking significant concern among unions and the local community.
High energy costs are investment deterrent
The high energy costs in the UK have long been a deterrent for heavy industry investments. For instance, much of the European innovation in steel production, like the use of hydrogen for direct reduced iron, has gravitated towards countries like Sweden, where cheap hydropower is plentiful.
UK Steel’s energy and climate change policy manager, Frank Aaskov, emphasised the importance of competitive electricity prices for the industry’s decarbonisation efforts, underscoring that the UK steel industry cannot thrive under current energy cost conditions.
“The steel industry is the foundation of the UK’s manufacturing and economic strengths,” said Aaskov, “We must not lose sight of how important electricity costs are in the move to green steel as we fully switch to electric arc furnace technology to secure steel for our nation.
“The UK steel industry cannot continue to face electricity prices that are more than double what our main European competitors benefit from. UK Steel data shows that wholesale electricity prices in the UK have been double the French and Spanish wholesale prices in recent months.
“For the UK steel industry to prosper and deliver on its decarbonisation targets, a new Government must deliver the lowest electricity prices in Europe.”
Supercharger policy
As the UK steel industry grapples with these challenges, the government’s role in mitigating high electricity prices becomes increasingly crucial. The current supercharger policy, which reduces levies for large electricity users, offers some relief but may not be sufficient given the underlying link between UK electricity prices and the cost of methane burned in power stations. As the industry awaits further action from the incoming government, executives remain cautious yet hopeful for more robust measures to secure their competitiveness.
Jonathan Reynolds, Secretary of State for Business and Trade, is anticipated to meet with Tata Steel executives for imminent talks. The outcome of these discussions will be pivotal in determining the future landscape of the UK steel industry, particularly in its efforts to embrace greener technologies amidst economic constraints.
