UK Electricity Prices Soar, Threatening Green Tech Transition in Steel Industry

UK electricity prices

In the spring of 2024, British electricity prices soared to nearly £66 per megawatt hour (MWh), more than double the rates paid by French and Spanish companies. This disparity, highlighted by UK Steel’s analysis of industry data, represents a significant challenge for the UK’s heavy industries, particularly as they strive to transition to greener technologies.

UK Steel’s data shows that the gap between UK electricity prices and those of France and Spain has reached its widest point since at least 2015. Historically, UK prices have been higher, with the exception of the volatile energy crisis following Russia’s 2022 invasion of Ukraine.

This growing divergence poses a serious obstacle for the anticipated Labour government, which has pledged robust support for the steel industry’s shift to electric technology from coal. Labour has committed £3bn in subsidies to aid this transition. Within hours of the UK general election results on Thursday evening, Tata Steel will conclude operations at one of its blast furnaces at Port Talbot, South Wales, marking the first step towards building a cleaner electric arc furnace. The transition, however, involves significant job losses, with up to 2,800 positions at risk.

Jonathan Reynolds, Labour’s prospective business secretary, is expected to meet with Tata Steel executives shortly after the election to discuss further government support. The Conservative government had previously agreed to £500m in subsidies, but unions are hopeful that Labour will negotiate a deal that safeguards more jobs. Tata executives have indicated their willingness to consider additional investments to preserve more jobs, although Labour has not specified its plans for the remaining £3bn pledge.

Despite these efforts, the high electricity costs in the UK deter investment in heavy industry. European investments in steel innovation, such as hydrogen-based direct reduced iron production, have predominantly favored Sweden, where cheap hydropower is abundant. In contrast, the average electricity prices in France and Spain during the second quarter of 2024 were £26.68 and £27.89 per MWh, respectively, bolstered by nuclear and solar power.

UK Steel’s energy and climate change policy manager, Frank Aaskov, emphasized the critical role of electricity costs in the steel industry’s green transition. “The UK steel industry cannot continue to face electricity prices that are more than double what our main European competitors benefit from,” he stated. “For the UK steel industry to prosper and deliver on its decarbonisation targets, a new government must deliver the lowest electricity prices in Europe.”

While the government has implemented measures like the supercharger policy to reduce industrial energy costs, UK electricity prices remain tightly linked to methane prices, limiting the scope for significant reductions.