The British steel industry has called for capped energy prices for heavy industry in order to match France and Germany, as companies grapple with the fallout from Donald Trump’s trade war.
UK Steel, a lobby group, has proposed the government set a maximum price for energy through a contract for difference (CfD), before an announcement of a new steel strategy.
Britain’s steelmakers and other industrial energy users have long been united in naming high energy prices as the key factor disadvantaging UK operations.
UK Steel’s figures suggest producers face electricity costs up to 50% higher than those in France and Germany, although analysis by the consultancy firm Baringa said UK companies will pay about £68 a megawatt hour (MWh) for electricity this year, compared with £44 in France and £52 in Germany.
The UK steel industry is lobbying for help as it battles against a global glut in supply, most notably from China and the impact caused by Trump’s trade war. The US president imposed a 25% tariff on producers of steel and aluminium on Wednesday in a move to try to force companies to manufacture in the US.
Liam Bates, the president of long products at Marcegaglia Stainless in Sheffield, said: “Energy is the biggest area. You need to have good energy [supply], and competitive energy pricing. At this time, when there is a struggle, it would help.”
The industry has blamed the UK’s higher prices on a heavy reliance on gas-fired power generation, limited use of subsea cables that would give access to cheaper foreign electricity, and lower subsidies than rivals.
Under a CfD, the government would pay energy-intensive industrial users the difference if prices rose above a set level, while the companies would pay back the difference if prices fell below it. Setting the price at similar levels to France would cost 17p a megawatt, or £51m annually between 2026 to 2030, Baringa said – although that cost could increase if more producers set up shop in the UK.
The industry argued the mechanism would give clarity that would make it much easier for companies to invest in the UK. However, it is unclear whether the government would support a policy that could see it liable for big costs if global gas market prices were to increase. Labour also promised in its election manifesto to drive down industrial electricity costs.
Frank Aaskov, UK Steel’s director of energy and climate change policy, said: “The British steel industry is at a severe competitive disadvantage due to long-term high electricity costs. The UK is an outlier, as European competitors benefit from government wholesale price mechanisms that shield them from high power prices.”
The UK government has a £2.5bn fund to invest in the steel industry – a pledge that has so far survived plans for steep cuts in other parts of the budget. The fund was established as a way to upgrade the industry for the transition to net zero steel, including switching from polluting blast furnaces to much cleaner electric arc furnaces.
Some top executives have said that the government would be better off spending it on lowering energy prices, rather than making direct bets on technology.
Some UK steelmakers want the government to impose “safeguard” tariffs to prevent trade diversion caused by Trump’s levies.
