UK steelmakers are experiencing heightened cost pressures compared to their European counterparts, according to analysis from the UK Steel lobby group. The premium paid by British producers over French steelmakers has reached nearly £30 per megawatt hour, marking the highest level in a three-year period. This widening gap represents a significant competitive disadvantage in an industry where energy represents a major operational expense.
The electricity cost disparity stems primarily from the UK’s dependence on gas for power generation. Unlike France, which relies heavily on nuclear reactors to set electricity prices, and Germany, where coal plays a substantial role, the British market structure means wholesale gas prices determine electricity costs across all generation sources, including cheaper renewables. Recent geopolitical tensions have exacerbated this situation, with global gas prices surging following regional instability. The timing is particularly consequential given that approximately 75 percent of British steel exports, valued around £3 billion annually, target the EU market.
While the cost gap with France had narrowed during the preceding three years to £18 per megawatt hour previously, the recent spike reverses this trend. Comparisons with Germany show a slightly smaller differential of about £12 per megawatt hour this year. The current situation, though severe, remains below levels reached in 2022 when Russia’s invasion of Ukraine triggered a broader energy crisis.
Government efforts to address the issue have included removing most policy-added costs to industrial electricity bills during the previous year. However, industry representatives argue that direct price subsidies represent the only viable near-term solution. The UK Steel director general has proposed a price cap mechanism estimated to cost approximately £51 million annually, under which government would cover costs exceeding the cap while industry would contribute when prices fall below it. Separately, the government announced workforce development initiatives on Monday targeting over 100,000 job opportunities across eight designated growth sectors, with additional plans forthcoming for advanced manufacturing and creative industries.
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