British
industrial facilities pay up to 50% more for electricity than competitors in
France and Germany, which is hampering their ability to decarbonise, the steel
industry is warning.
Image: British
Steel
Steel UK has
urged the Government to act on this significant price discrepancy as Ministers
return from Parliament’s summer recess this week.
Ministers will
doubtless be thinking about energy prices for homes after the Chancellor added
new means testing filters to the winter fuel payment for pensioners, and the
private sector is also striving for updated interventions.
Steel UK has
warned that power costs for a fully electrified industry would represent up to
180% of the GVA that the sector brings to the economy.
Steelmakers
already face electricity bills £37m to £50m higher each year than their
competitors in France and Germany, the trade body claims.
Steel UK wants
Ministers to:
- Compensate the industry
for 90% of its network charges, in line with support levels offered in the
EU
- Formally track industrial
energy price disparities between countries
- Reform the wholesale
energy market, discounting locational pricing models
The newly-elected, Labour-led
Government has already pledged to bring forward a ten-year industrial strategy
aligned with the UK’s 2050 net-zero target and interim carbon budgets. The Strategy will allocate
£2.5bn to low-carbon steel this Parliament.
Under the
previous Tory Government, one-off deals to decarbonise steelmaking had been secured by British Steel and Tata, with a focus on
electric arc furnace construction. This leaves a narrowing role for
hydrogen in British steelmaking.
“For too long,
the UK steel industry has been crippled by high industrial electricity prices,
placing a heavy burden on the industry’s competitiveness, profitability, and
ability to invest in future growth,” said UK Steel’s director-general Gareth
Stace.
“This new
Government has already set out its willingness to deliver for the steel
industry, and it now has the opportunity to bring industrial electricity prices
in line with our competitors.”
The UK
Government is set to reform wholesale energy pricing accounting for megatrends like
the transition away from coal in electricity generation and the electrification
of the economy.
Under Boris
Johnson, Ministers began exploring how best to shift some policy subsidies from
electricity to gas, thereby making electrified cooking, heating and transport
more affordable. This work is still ongoing.
Ministers are
also grappling with the thorny issue of
locational pricing – offering cheaper electricity to
communities near new generation and/or distribution infrastructures. Pricing could
also vary based on supply and demand conditions locally over time.
This could help
ease construction in some areas, but many business groups argue it would be
unfair for those based in regions less suitable for large-scale renewable
construction, and with higher demands. For example, London and the South-East
would stand to benefit to a far lesser extent than the Scottish Highlands.