UK steelmakers face widening electricity price gap with European rivals

British steel producers are expected to pay 49% more for electricity than their French competitors and 15% more than German steelmakers in 2026/27, according to a new report from industry association UK Steel. The organisation is calling for a new electricity price compensation mechanism to reduce the competitive disadvantage.

The report, Competitive electricity prices: a prerequisite for reindustrialisation, estimates that UK steelmakers will pay an average of £91/MWh for electricity in 2026/27, compared with £61/MWh in France and £79/MWh in Germany.

Electricity price differences increase production costs

According to UK Steel, the electricity price gap with France alone will cost British steelmakers an additional £66 million in 2026/27. The association estimates that cumulative additional costs compared with France will reach £917 million since 2017/18.

The differences are even greater when compared with some international competitors. UK steel producers face electricity prices 125% higher than those in Alberta, Canada, 68% higher than in Vietnam and 71% higher than in Turkey.

Despite recent government measures to reduce industrial electricity costs, UK Steel argues that high wholesale prices continue to undermine the competitiveness of domestic steel production.

Proposed mechanism could cost £51 million annually

UK Steel has proposed a wholesale electricity price rebalancing mechanism developed through independent modelling by energy consultancy Baringa.

Under the proposal, energy-intensive industries would receive compensation when British wholesale electricity prices exceed a European benchmark. Conversely, participating companies would make payments when UK prices fall below that benchmark.

The mechanism is estimated to cost £51 million annually between 2026 and 2030, equivalent to approximately 42 pence per UK household per year.

According to the modelling, the scheme could subsequently generate a net financial return averaging £13 million annually between 2031 and 2035.

UK Steel says the mechanism could be implemented within the existing regulatory framework while longer-term electricity market reforms are developed.

Electricity costs remain critical for steel decarbonisation

UK Steel Director-General Peter Brennan said high electricity prices were preventing British steelmakers from competing on equal terms with international producers.

“Despite welcome Government action, our electricity prices remain vastly higher than those of our European and global competitors, and the gap with France is getting worse,” Brennan said.

The association argues that competitive electricity prices will become increasingly important as British steelmakers transition towards lower-carbon production technologies, particularly electric arc furnaces.

The report also calls for changes to network charge compensation arrangements to reduce financial pressure on steelmakers and for electricity cost relief to be extended to more companies across the steel supply chain.

UK Steel considers lower industrial electricity prices essential to attracting investment and achieving the government's ambition for domestic producers to supply 50% of British steel demand.

Source: UK Steel, Photo: Fotolia