UK steelmakers pay almost 30 pounds more per megawatt hour than French rivals
Gap worst in three years as gas sets the power price, government subsidises plants it taxes into uncompetitiveness
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British Steel’s Scunthorpe works. Analysts blame the UK’s high electricity prices on its reliance on gas for power generation. Photograph: Ian Forsyth/Getty Images
theguardian.com
British steelmakers now pay almost £30 per megawatt hour more for electricity than their French counterparts, the widest gap in three years, according to analysis by the lobby group UK Steel. The figure arrives nine days before the autumn Budget, with the government simultaneously promising to reindustrialise the country and announcing support schemes for more than 100,000 workers across eight growth sectors.
The premium over France had narrowed to £18 per MWh last year after most policy-added costs on heavy industrial electricity bills were removed under Keir Starmer. It has since widened again, driven partly by the surge in global gas prices that followed the US-Israeli war with Iran and the closure of the Strait of Hormuz. The gap reached £153 per MWh in 2022, when Russia's invasion of Ukraine upended the gas market; against Germany it now stands at about £12.
The structural problem predates any war. British electricity prices are set by the wholesale gas price even when the power comes from wind or solar, because gas-fired generation remains the marginal source. France's prices are anchored by its nuclear fleet. That means every geopolitical shock in gas is transmitted directly into the input costs of an industry the government has declared strategically essential — and whose exports, roughly 75 percent of them, go to the EU, worth about £3 billion a year.
Peter Brennan, director general of UK Steel, said British producers were being asked to compete with one hand tied behind their backs, and proposed a cap under which the state pays the difference when prices exceed a threshold and receives payments when they fall below it — estimated at about £51 million a year. Andy Burnham, who has made reindustrialisation his signature goal, counts electricity prices among the biggest obstacles to it.
The cap would treat the symptom while leaving the cause in place: a market design that lets a globally volatile commodity determine the price of every electron. Meanwhile the Treasury prepares a budget that industry groups have asked, above all, not to raise business taxes.
About £3 billion of steel crosses the Channel each year, produced by firms paying nearly £30 per megawatt hour more than the French mills it competes against.