The Urgent Call for Price Parity in the UK Steel Industry
The UK steel industry is facing a significant challenge in terms of energy costs, which are substantially higher than those in competing European countries. The latest report from UK Steel highlights a troubling disparity: UK steelmakers pay up to 50% more for electricity than their counterparts in countries like France and Germany. This puts UK steel at a severe disadvantage, particularly as the sector strives to remain competitive in an increasingly globalized market.
Unlike many steel-producing nations, such as France, Italy, Spain, and the UAE, the UK lacks a system to shield energy-intensive industries from fluctuating and high wholesale energy prices. This gap leaves UK steelmakers vulnerable to volatility and puts their long-term investments in new technologies at risk.
The Case for Government Intervention
The UK Steel report argues that timely and decisive government action is essential to maintain the competitiveness of the UK steel sector. Among the key recommendations is the introduction of a mechanism that would ensure price parity with the lowest-cost European competitors. The government could do this by fixing electricity prices for the steel industry, thus providing a more predictable and affordable energy environment.
This proposed mechanism would offer three key benefits:
1. Price Parity: Ensuring electricity prices are competitive with the lowest-cost European countries, boosting global competitiveness.
2. Protection Against Price Volatility: Shielding the industry from energy price fluctuations, allowing steelmakers to plan and invest in future technologies.
3. Shared Risk and Reward: A system where the sector repays the government when energy prices fall below a set level, ensuring a fair balance between government support and sectoral responsibility.
Challenges Facing the Industry
The call for action is driven by several factors. High electricity prices are just one of the challenges the industry faces. The UK steel sector must also contend with geopolitical uncertainty, rising costs, and competition from foreign markets where electricity prices are far lower due to government-backed energy schemes. The European Union, for example, offers energy-intensive industries like steel manufacturers protections against volatile prices, making it easier for these companies to maintain profitability and competitiveness.
Frank Aaskov, Director of Energy and Climate Change Policy at UK Steel, stated, "The UK steel industry is at a severe competitive disadvantage due to long-term high electricity costs." He emphasized that as the UK government prepares its long-term Steel Strategy, addressing electricity prices must be a priority to secure the industry's future.
The Need for a Robust Steel Strategy
A successful Steel Strategy can pave the way for the industry to thrive. According to Lisa Coulson, British Steel’s Strategy and Marketing Director, the UK needs a competitive steel industry to underpin economic growth and support the transition to a net-zero economy. However, unless immediate and practical actions are taken on energy prices, the UK risks becoming a less viable location for steel production.
British Steel’s participation in the call for change underscores the urgency of the situation. Without effective government intervention, the UK steel industry will remain at a significant disadvantage compared to other nations. These high energy costs hinder efforts to decarbonize and prevent investment in essential technologies like the Electric Arc Furnace, a more sustainable method of steel production.
Key Takeaways:
• UK Steelmakers face electricity prices up to 50% higher than competitors in France and Germany.
• The lack of protection for energy-intensive industries in the UK makes steel production increasingly expensive.
• A report from UK Steel calls for the government to introduce a mechanism to ensure price parity with European competitors.
• The proposed mechanism would fix electricity prices for the steel sector to improve global competitiveness and protect against price volatility.
• The report also recommends sharing risk and reward with the government by repaying when prices fall below agreed levels.
• Frank Aaskov and Lisa Coulson emphasize that competitive energy prices are vital for the future of the UK steel sector, allowing it to attract investment, decarbonize, and protect jobs.
• Without action on energy prices, the UK risks losing its competitive edge and jeopardizing national steel production.
• The UK government is currently formulating a Steel Strategy with £2.5 billion in support, but addressing energy prices is critical for its success.
