Electricity costs put UK steelmakers in worst position in three years against EU rivals

British steelmakers face their worst competitive position in three years as electricity costs surge to almost £30 per megawatt hour above French levels, according to analysis by UK Steel, the industry lobby group.

The premium has widened sharply from £18 a megawatt hour last year, driven by global gas price spikes following US military action against Iran and Tehran's closure of the Strait of Hormuz. Analysts attribute Britain's cost disadvantage to its reliance on gas for power generation. Unlike France, where nuclear reactors determine electricity prices, or Germany, where coal generation plays a large role, the UK's wholesale gas price sets the floor for all electricity, including renewables like wind and solar that cost significantly less to produce.

This gap matters directly for British export competitiveness. The EU absorbs about 75% of UK-exported steel, worth approximately £3 billion annually. The gap with Germany this year fell slightly to about £12 per megawatt hour.

Peter Brennan, director general of UK Steel, stated: "British steelmakers are being asked to compete with one hand tied behind their backs. Despite welcome government action, our electricity prices remain vastly higher than those of our European and global competitors, and the gap with France is getting worse."

UK Steel has proposed a government price cap costing an estimated £51 million per year. Under the proposal, the government would pay the difference when prices exceed the cap level, while industry would reimburse the government if prices fall below it.

The Keir Starmer government removed most policy-added electricity costs for heavy industrial businesses last year. A government spokesperson said the administration has cut electricity bills by up to 25% for over 10,000 manufacturing businesses and reduced costs for hundreds of the most electricity-intensive firms by around £1 billion annually. The government has made reindustrialisation a stated priority.

Analysts note that expanding renewable energy capacity remains the primary long-term solution, though UK Steel argues this cannot be achieved quickly enough. Direct price subsidies represent the industry's preferred near-term option.