UK steelmakers electricity costs hit worst gap with France in three years
UK steelmakers face an electricity cost premium of almost £30 per megawatt hour over French rivals, the widest in three years, according to UK Steel analysis, which attributes the widening gap to a gas price surge after Iran's closure of the strait of Hormuz.
UK steelmakers electricity costs hit worst gap with France in three years
A widening premium over France
British steelmakers have slipped further behind their French competitors on electricity costs, with UK Steel's analysis putting the premium at almost £30 per megawatt hour - its highest level in three years. The trade body connects the widening to a jump in global gas prices following the US-Israeli war on Iran, after Iran shut the strait of Hormuz in response to Donald Trump's bombing campaign.
The gap has moved sharply in both directions in recent years:
- It had narrowed over the previous three years to £18 per MWh last year.
- That was far below the 2022 peak of £153, when Russia's invasion of Ukraine triggered a global gas market crisis.
- The gap with Germany fell slightly this year to about £12 per MWh.
Why UK power prices track gas
Under market rules, the wholesale gas price sets the price of electricity even from cheaper sources such as wind or solar. Analysts attribute the UK's high electricity prices to its reliance on gas for power generation - a problem for cleaner steelmaking, which depends on electric arc furnaces.
Elsewhere the mix differs: French prices are mainly determined by nuclear reactors, while heavily polluting coal still plays a large role in German generation.
UK Steel calls for direct subsidies
With most policy costs already removed from heavy industry's bills under Keir Starmer last year, director general Peter Brennan said direct subsidies were the only option left to help steelmakers. UK Steel has proposed a cap on prices, estimated to cost about £51m a year, under which the government would pay the difference above the cap and industry would pay back below it.
"British steelmakers are being asked to compete with one hand tied behind their backs," Brennan said, adding that despite welcome government action, prices remain vastly higher than those of European and global competitors and the gap with France is getting worse.
"But we cannot rebuild British manufacturing while forcing our steelmakers to pay substantially more for electricity than their competitors."
Government response and jobs plans
A government spokesperson said: "We are tackling industry's number one concern head-on by reducing electricity bills by up to 25% for over 10,000 manufacturing businesses", alongside cuts of around £1bn a year for the most electricity-intensive businesses.
On Monday the government also announced measures to support more than 100,000 workforce opportunities across the eight key growth sectors in its industrial strategy, aimed at young people, with a focus on professional and business services, the defence sector and construction. Plans for financial services, clean energy and life sciences had already been announced, with advanced manufacturing and creative industries still to come.
For Andy Burnham, energy prices represent perhaps the biggest obstacle to his goal of "reindustrialising" the UK. UK Steel estimates its price cap proposal would cost about £51m a year.
