The British steel industry has initiated a campaign for the UK government to implement capped energy prices for heavy industries, aiming to align energy costs with those of counterparts in France and Germany.

UK Steel, a prominent industry lobby group, is advocating for a mechanism known as a contract for difference (CfD) as it anticipates the government's forthcoming announcement of a new steel strategy.

High energy prices have been consistently highlighted by steelmakers and other industrial energy users as significant contributors to the operational disadvantages faced by UK manufacturers.

Current estimates from UK Steel suggest that electricity costs for UK producers could be as much as 50% higher than those encountered by their French and German counterparts.

Recent analyses indicate that UK companies are expected to pay around £68 per megawatt hour (MWh) for electricity in 2023, contrasted with £44 in France and £52 in Germany.

The UK steel sector is grappling with the ramifications of a global oversupply, particularly from China, compounded by the tariff policies introduced during Donald Trump's presidency.

In March 2018, President Trump enacted a 25% tariff on imported steel and aluminium, aimed at promoting domestic manufacturing within the United States, which has influenced global market dynamics.

Liam Bates, president of long products at Marcegaglia Stainless based in Sheffield, emphasized the critical importance of competitive energy pricing for the steel industry’s sustainability.

He noted, "You need to have good energy supply, and competitive energy pricing.

At this time, when there is a struggle, it would help."

The British steel industry has attributed higher operational costs to various factors, including a heavy dependence on gas-fired power generation, limited access to cheaper electricity through subsea cables, and relatively lower subsidies compared to competitors in Europe.

The proposed CfD framework would involve the government compensating energy-intensive industrial users whenever electricity costs exceed a predetermined threshold, while users would return this subsidy if prices fall below that baseline.

Projections from consultancy firm Baringa suggest that aligning UK electricity prices with those of France could incur an estimated cost of 17p per megawatt, equating to approximately £51 million annually from 2026 to 2030, with potential cost increases should more manufacturers establish operations in the UK.

Advocates within the steel industry assert that such a pricing mechanism would enhance the investment landscape in the UK. However, it remains uncertain whether the government would endorse a policy that could expose it to considerable liabilities if global gas prices were to rise significantly.

Additionally, the Labour Party's manifesto includes pledges to reduce industrial electricity costs.

Frank Aaskov, UK Steel's director of energy and climate change policy, commented on the competitive challenges facing the British steel industry, stating, "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 prices."

Currently, the UK government has allocated a £2.5 billion fund intended for investment in the steel sector, which aims to facilitate the industry's transition to net zero emissions.

This fund is meant to support upgrades, including a shift from traditional blast furnaces to more environmentally friendly electric arc furnaces.

Conversely, some executives have voiced concerns that the government might achieve greater impact by redirecting this funding towards reducing energy prices rather than focusing exclusively on technological advancements.

Furthermore, various UK steel manufacturers are advocating for the implementation of safeguard tariffs to mitigate the effects of trade diversions linked to the tariffs imposed by the United States.