British steelmakers are operating at a significant disadvantage compared to European competitors on electricity pricing, with the cost differential against French counterparts reaching nearly £30 per megawatt hour—the highest level in three years, according to analysis by UK Steel.
Analysts attribute the disparity primarily to the UK’s dependence on gas for power generation, particularly for electric arc furnaces used in cleaner steel production. The wholesale gas price determines electricity rates across all generation sources, even renewables like wind and solar that cost substantially less to produce. Recent geopolitical events have exacerbated the situation, as Iran’s closure of the strait of Hormuz in response to military action has driven global gas prices upward. By contrast, French electricity pricing is predominantly influenced by nuclear power generation, while Germany relies significantly on coal-based sources.
The competitive gap carries considerable implications for British manufacturing, as the EU represents the primary market for UK products, accounting for approximately 75% of exported steel valued at roughly £3 billion annually. While the premium over France had narrowed to £18 per megawatt hour in the previous year—down from £153 in 2022 following Russia’s invasion of Ukraine—current trends are moving in the opposite direction. The differential with Germany this year declined slightly to approximately £12 per megawatt hour.
The government previously removed most policy-related costs from heavy industrial electricity bills, but further reductions present limited options. UK Steel has advocated for direct subsidy mechanisms, proposing a price cap estimated to cost approximately £51 million annually, with government payments offsetting prices above the threshold and industry contributions when rates fall below. The industry group contends that competitive conditions are untenable without such intervention.
Separately, the government announced workforce development initiatives across eight key growth sectors, including advanced manufacturing, defence, construction, professional services, clean energy, life sciences, and financial services. Officials stated measures are reducing electricity costs for over 10,000 manufacturing businesses by up to 25 percent and cutting expenses for highly electricity-intensive operations by approximately £1 billion annually.
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