British steelmakers have been pushed further behind European rivals on electricity costs after the US-Israeli war on Iran caused a surge in global gas prices.
The premium paid by the British industry over its French counterpart has risen to almost £30 a megawatt hour (MWh), its highest level in three years, according to analysis by the lobby group UK Steel.
Energy prices have long been one of the main factors businesses cite when asked what is holding back British industry. For Andy Burnham they represent perhaps the biggest obstacle to his goal of “reindustrialising” the UK.
Analysts blame the UK’s high electricity prices on its reliance on gas for power generation, which is crucial for cleaner steelmaking with electric arc furnaces.
The way the market is set up means that the wholesale gas price determines the price of electricity even from other sources that cost much less to produce, such as wind or solar power, and Iran’s closure of the strait of Hormuz in response to Donald Trump’s bombing campaign has caused global gas prices to soar.
Electricity prices in France are mainly determined by its nuclear reactors, while in Germany heavily polluting coal still plays a large role in generation.
Comparisons with European rivals are particularly important for the UK because the EU is often the main market for British manufactured products, including about 75% of exported steel, worth about £3bn.
The gap with France had fallen in the previous three years to reach £18 a MWh last year, although it remains below the £153 reached in 2022 when Russia’s invasion of Ukraine caused a crisis in the global gas market. The gap with Germany this year fell slightly to about £12.
Under Keir Starmer most of the costs added by government policy to heavy industrial businesses’ electricity costs were removed last year. The main option to bring the price down further, however, would be to set up more cheap renewables – a challenge in the short term – or to directly subsidise prices.
The director general of UK Steel, Peter Brennan, said direct subsidies were the only option to help steelmakers. The lobby group has proposed a cap on prices that it estimates would cost about £51m a year. The government would pay the difference when prices go above that level, while the industry would pay the government if prices go below.
“British steelmakers are being asked to compete with one hand tied behind their backs,” Brennan said. “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.
“The government has rightly made reindustrialisation a national priority. But we cannot rebuild British manufacturing while forcing our steelmakers to pay substantially more for electricity than their competitors.”
Separately, the government announced measures on Monday to support more than 100,000 workforce opportunities in the eight key growth sectors in its industrial strategy. The “jobs plans” are intended to help young people find work, with a focus on professional and business services, the defence sector and construction.
Similar plans for financial services, clean energy and life sciences have already been announced. Plans for advanced manufacturing and the creative industries are expected to follow shortly.
A government spokesperson said: “We are tackling industry’s number one concern head-on by reducing electricity bills by up to 25% for over 10,000 manufacturing businesses, and cutting costs for hundreds of our most electricity-intensive businesses by around £1bn per year – delivering on the prime minister’s pledge to reindustrialise Britain.”