British steelmakers have fallen further behind their European counterparts on electricity costs following recent geopolitical developments that have driven up global gas prices. According to analysis from UK Steel, the premium paid by British industry compared to French producers has climbed to almost £30 per megawatt hour, representing the highest differential in three years. The widening gap reflects structural differences in how electricity prices are determined across regions.
The UK’s elevated electricity costs stem largely from its dependence on gas for power generation, a fuel source particularly important for cleaner steelmaking using electric arc furnaces. The wholesale gas price effectively sets electricity costs across the market, even for renewable sources like wind and solar that have significantly lower production expenses. In contrast, France relies predominantly on nuclear reactors for electricity generation, while Germany continues to utilize coal-based power. Recent geopolitical tensions, including Iran’s closure of the Strait of Hormuz in response to military action, have caused substantial increases in global gas prices.
The cost differential carries significant implications for British manufacturers competing in international markets. Approximately 75 percent of exported UK steel, valued at around £3 billion, typically goes to European markets. While the gap with France had narrowed over the previous three years to reach £18 per megawatt hour before widening again, the current situation remains substantially better than 2022 levels when Russia’s invasion of Ukraine created acute global energy market disruptions. The current advantage over Germany remains more modest at approximately £12 per megawatt hour.
Government action has provided some relief to heavy industrial businesses’ electricity costs, with most policy-related charges removed during the previous year. However, industry representatives argue further intervention is necessary. UK Steel’s director general has called for direct price subsidies, proposing a price cap mechanism estimated to cost approximately £51 million annually. The government spokesperson indicated recent measures have reduced electricity bills by up to 25 percent for manufacturing businesses and cut costs by around £1 billion yearly for the most electricity-intensive operations. The government also announced workforce development initiatives across eight key growth sectors as part of its broader industrial strategy.
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