UK steel industry provides Government solution to address uncompetitive electricity prices for foundation sectors

New research published today by UK Steel proposes developing a new mechanism to fully address uncompetitive electricity prices faced by the UK’s steel industry.

UK industrial power prices are notoriously expensive, and UK Steel’s research shows that steelmakers pay up to 50% more than Germany and France. New policy solutions are essential to delivering affordable energy, securing industry competitiveness, and strengthening the UK’s steel production, thereby enhancing economic resilience and national security.

Unlike many steel-producing countries - such as France, Italy, Spain and the UAE - the UK does not have a mechanism to protect energy-intensive industries (EIIs) from high wholesale prices. The report recommends introducing a two-way Contract for Difference (CfD) mechanism, which will:
1. Provide price parity with the lowest-cost European competitors by fixing electricity prices for the steel sector, increasing global competitiveness.
2. Protect against price volatility, enabling long-term planning and investment in low-carbon technologies such as Electric Arc Furnaces.
3. Share risk and reward, with the sector paying back the Government when prices fall below the agreed strike price.

The proposed CfD is a practical and future-focused solution to support the UK steel sector and drive its green transition. The mechanism will be essential to the Government’s Steel Strategy in order to create a more competitive business landscape for the steel industry, attract investment, and enable wider decarbonisation.

Frank Aaskov, Director, Energy and Climate Change Policy at UK Steel, said:

“Introducing a wholesale mechanism is an unrivalled opportunity for the Government to keep its manifesto commitment to lower industrial power prices, and UK Steel’s report has the blueprint to do it.

“The British steel industry is at a severe competitive disadvantage due to long-term high electricity costs. The UK is an outlier as European competitors benefit from government wholesale price mechanisms that shield them from high power price. As part of the Steel Strategy, uncompetitive electricity prices must be addressed to ensure the steel industry can thrive, secure thousands of jobs, and safeguard national steel production as geopolitical turbulence increases.

“We cannot have electricity prices tying one hand behind our back any longer. To attract investment, compete internationally, decarbonise and protect jobs, the sector needs a practical, market-driven solution that ensures the UK remains a viable place for steel production. A successful Steel Strategy can deliver this, from as early as next year.”