A recent report by UK Steel highlights the significant challenges faced by the industry in transitioning towards cleaner production methods due to soaring power costs. The higher electricity requirements for greener practices have placed steel companies under financial strain, limiting their ability to invest in more environmentally friendly technologies.
In the autumn, energy prices surged, causing UK steel producers to pay £88 more per megawatt hour compared to their German counterparts. The average electricity prices paid by steel companies in the UK during September and October reached £182 per megawatt hour, nearly double the estimated German average of £94.02 per megawatt hour for the same period. UK Steel estimates that the disproportionately high electricity prices in the UK have imposed an additional £90 million cost on the country's steelmakers this year alone, amounting to £345 million over the past six years. This figure is equivalent to almost two years' worth of capital investment in the sector. UK Steel further reveals that British steel producers are paying 61% more for electricity than their German counterparts and 51% more than their French counterparts. It emphasises that this price disparity poses a significant obstacle to achieving the net-zero target, as all decarbonisation options for steel production, including carbon capture and storage (CCS), hydrogen, and electric arc production, require significantly increased electricity consumption.
Power costs currently account for approximately 20% of steel manufacturing expenses. Shifting from blast furnaces to hydrogen-based steelmaking could potentially necessitate up to 250% more electricity, while a complete transition to electric arc furnace production is expected to increase electricity consumption by 150%. UK Steel asserts that the industry is competitively disadvantaged and may face challenges in attracting investments or maintaining long-term sustainability. Therefore, it urges the government to take corrective measures to address the situation.
