UK steelmakers have to fight for competitiveness due to high electricity costs. This problem should be the first challenge for the Steel Industry Council, according to the UK Steel industry association.
As steel is a cornerstone of government priorities, such as renewable energy projects, infrastructure expansion, and national defense, UK Steel notes the need for decisive action by the authorities.
As noted, British steelmakers currently pay 50% more for electricity than their counterparts in Germany and France. This leads to a price disparity of up to £22/MWh.
According to UK Steel, this significant difference in costs is due to higher wholesale electricity prices in the country, grid connection fees and dependence on natural gas. Since 2016, the association estimates that this difference has cost UK producers an additional £807 million compared to their French competitors and £697 million compared to their German competitors.
As the industry switches to electric arc furnaces, the problem will only get worse. Without action to address it, these costs will undermine profitability, deter investment and threaten the industry’s ability to meet its emissions reduction target.
UK Steel calls on the government to take the following steps
- increase compensation for network costs to 90%, bringing it in line with the levels in Germany and France;
- reform the wholesale electricity market, for example, by considering the UK equivalent of the French ARENH tariff (regulated access to existing nuclear power);
- abandon the localized pricing model (REMA), which can put steel producers at a disadvantage.
Earlier, Gareth Stace, CEO of UK Steel, told the Independent that the UK steel industry is now in as bad a shape as it was during the 2016 crisis, when a number of smaller players went into administration amid falling steel prices. He also predicted a challenging 2025.
The government may change what UK steelmakers have to pay for grid connection. He is also concerned about the proposal for local electricity pricing zones, which could increase costs for steelmakers.
According to Stace, the combination of these factors, as well as high carbon costs, looks bad for the sector when it comes to attracting investment.
Earlier this year, the UK government set up a new Steel Industry Council to advise on the recovery of the steel industry and develop a future strategy for the sector.
