Rising Electricity Costs Hurt UK Steelmakers
British steelmakers face a competitive disadvantage due to rising electricity costs. These costs have reached their highest level in three years compared to European rivals. The premium for UK steelmakers over their French counterparts is nearly £30 per megawatt hour (MWh), according to analysis from the lobby group UK Steel. This increase is linked to the ongoing US-Israeli conflict, which is affecting global gas prices and, in turn, electricity costs.
Electricity prices in the UK are mainly influenced by its reliance on gas for power generation. This reliance is especially important for cleaner steelmaking processes that use electric arc furnaces. The market structure means that the wholesale gas price sets electricity prices, even for renewable sources like wind and solar. In contrast, France's electricity prices are mainly determined by its nuclear energy output. Germany continues to use coal, which also affects its pricing structure.
The gap in electricity costs had narrowed in recent years, dropping to £18 per MWh last year. However, it is still below the peak of £153 per MWh reached in 2022 during the global gas crisis caused by Russia's invasion of Ukraine. The UK government has removed some costs added by policy to heavy industrial electricity prices. However, analysts suggest that further reductions may need more investment in renewable energy or direct subsidies to lower prices.
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The rising electricity costs could hurt the competitiveness of UK steelmakers. They export about 75% of their products to the EU, valued at around £3 billion. Higher production costs may lead to increased prices for steel, affecting sectors that rely on this material.
Watch for developments in government energy policy and any measures to address rising costs. This includes announcements about renewable energy investments or subsidies.
Based on reporting by: theguardian.com