Steel sector welcomes UK Government’s move on energy costs but calls for further action to compete with Europe
Steel sector welcomes UK Government’s move on energy costs but calls for further action to compete with Europe
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The UK steel industry has welcomed a package of energy reforms announced as part of the UK Government’s Industrial Strategy, describing the measures as a “step in the right direction” toward restoring competitiveness but warns that significant cost gaps with European producers remain.
Among the headline changes is a major uplift in Network Charging Compensation, from 60% to 90% starting in 2026, bringing the UK in line with Germany and France. The move is expected to reduce industrial electricity costs by £6.5/MWh, saving the steel sector £14.5 million annually.
Further reforms include the continuation of indirect carbon compensation and the introduction of a new British Industrial Competitiveness Scheme, which will exempt qualifying manufacturers from key energy levies starting in 2027. UK Steel estimates the combined savings from these reforms could reduce electricity bills by up to 25% for some firms.
However, despite the progress, steel producers in the UK still pay between £10-16/MWh more for electricity than competitors in France and Germany adding an estimated £36 million per year in extra costs to the industry. This disparity is largely attributed to the UK’s heavier reliance on natural gas and relatively lower state support for energy-intensive industries.
Gareth Stace, Director General of UK Steel, said: “The Government has rightly taken action to reduce industrial electricity prices and modelled its new policies on UK Steel’s recommendations. But while this is an important milestone, we are not out of the trenches yet.”
“The Industrial Strategy must be the first of many changes if we are to fully unlock the potential of the UK steel industry and back the growth and stability of our economy.”
UK Steel, in partnership with energy consultancy Baringa, has proposed a more comprehensive solution: a two-way Contract-for-Difference (CfD) mechanism that would peg wholesale electricity prices for the industry to those in France and Germany. The model would fix electricity costs at a competitive rate and allow the sector to repay the government if prices fall below a set threshold.
Port Talbot-based Tata Steel UK also welcomed the reforms but stressed that more targeted support is essential if the UK is to retain and grow its steel manufacturing base.
Tom Evans, Head of Public Affairs for Tata Steel UK, said: “We are pleased the Government has recognised the serious challenge high energy costs pose to energy-intensive industries. But electricity prices in the UK remain up to 50% higher than those faced by our European competitors.”
“We urge Government to seriously consider our industry’s CfD proposals to deliver long-term price stability and unlock critical investment in low-carbon technology as we transition to electric arc furnace steelmaking.”
UK steel producers pay approx. £68/MWh for electricity, compared to £44/MWh in France and £52/MWh in Germany.
Without further intervention, UK steelmakers say they risk falling behind international competition, undermining efforts to decarbonise and invest in new green technologies.
In October 2024, Tata Steel ceased ironmaking at its Port Talbot site and paused domestic steelmaking operations in preparation for a major transition. The company plans to commission a new 3.2 million tonne per annum Electric Arc Furnace (EAF) by late 2027 or early 2028. During the interim period, the company will rely on imported steel slab and coil to serve its UK and European operations.
Tata Steel UK is currently undergoing a major restructure, which will see its UK workforce reduce to approximately 5,000 employees. The firm has pledged to achieve net-zero steel production by 2045, with a 30% emissions reduction target set for 2030.
