British steelmakers are paying almost £30 per megawatt hour more for electricity than their French competitors, according to new analysis by UK Steel. The differential, its widest in three years, has renewed industry pressure for government intervention as producers consider the operating costs of electricity-intensive manufacturing.
Against France, the gap had narrowed to approximately £18/MWh last year after reaching £153/MWh during the extraordinary energy market conditions of 2022. It has widened again amid higher international natural gas prices, while the latest reported gap between British and German steel producers is about £12/MWh, slightly lower than the previous comparison.
These figures compare the electricity costs faced by steel producers, not the price paid by every business or household in the respective countries. Contract terms, support schemes, consumption profiles and the composition of electricity bills can affect what individual industrial users ultimately pay.
Gas prices remain influential because gas-fired generation frequently sets the marginal wholesale electricity price in Great Britain. In a market where generators are paid according to the marginal price needed to meet demand in a particular trading period, movements in the cost of gas can increase wholesale power prices even when some electricity comes from lower-cost sources.
France’s extensive nuclear generation fleet gives it a different exposure to fossil fuel costs, although its electricity prices still respond to wider European market conditions. Germany has a different generation mix again, which helps explain why the British cost premium has moved differently against the two countries. None of these comparisons establishes that a single generating technology determines the price paid by every industrial customer.
Steelmaking is particularly sensitive to energy costs because the sector uses large amounts of electricity and other fuels to convert raw materials into finished products. Melting, rolling, finishing and numerous auxiliary processes depend on reliable energy supply, with electricity consumption varying substantially between production routes and individual plants.
The move towards electric arc furnace production is expected to increase the industry’s electricity demand. An electric arc furnace uses electrical energy to melt scrap steel and, where required by the process, other iron-bearing materials. Conventional blast furnace production instead uses coke and other inputs to provide heat and the chemistry needed to produce iron, so changing production routes alters both the emissions profile and the balance of energy inputs.
UK Steel estimates that the sector’s total electricity consumption could roughly double as electric arc furnace capacity expands. That projection is not a measured change already achieved. It illustrates why the price per megawatt hour will become increasingly consequential in decisions about furnace investment, operating schedules and long-term competitiveness.
At plant level, the financial effect of a price premium depends on the amount of electricity consumed. A hypothetical operation purchasing 500,000MWh annually would incur approximately £15 million of additional annual expenditure at a £30/MWh disadvantage, before any site-specific adjustments. This arithmetic is illustrative and does not describe the measured electricity bill of a particular steelworks.
Manufacturers considering major furnace investments must evaluate the initial cost of the equipment, connection capacity, power quality and the expected cost of electricity over its operating life. Electric arc furnaces impose substantial electrical loads, and their integration may require electrical infrastructure, control equipment and process changes beyond installing the furnace itself.
Production economics also depend on the availability and specification of scrap, the quality of the finished steel required and the downstream processing equipment. Lower electricity prices cannot by themselves resolve all of these constraints, but a persistent premium over competing producers can weaken the economics of investment in electrified capacity.
European Union markets remain a significant destination for British steel. Around three-quarters of the UK’s steel exports, valued at approximately £3 billion, go to EU markets. Producers therefore compete with suppliers operating under different energy price structures in markets where product specification, delivery reliability and price all influence purchasing decisions.
Government measures already address some components of industrial bills. The Network Charging Compensation scheme was increased from a 60% to a 90% discount from April 2026, reducing eligible network-related costs. Because compensation is paid in arrears, UK Steel says the associated savings for the 2026 period will not reach companies until 2027.
Those measures differ from direct support for wholesale electricity prices. Reducing network and policy costs can lower the delivered bill, but it does not automatically remove the risk that gas price movements will push the wholesale element above the levels faced by overseas competitors.
UK Steel has consequently proposed a wholesale power rebalancing mechanism intended to narrow the difference with lower-cost European countries. Under the industry’s proposed structure, government would cover the amount above an agreed reference price, while participating steelmakers would make payments back when market prices fell below that level.
UK Steel estimates the scheme could cost about £51 million annually under the assumptions used in its proposal. The figure is not approved public expenditure, a guaranteed future cost or a confirmed government commitment. The eventual balance of payments would depend on electricity prices, eligible consumption and the design of any mechanism adopted.
UK Steel director general Peter Brennan has argued that further direct support is necessary to address the industry’s competitive position. The government has highlighted existing relief arrangements and its plans to improve industrial electricity affordability, but the wholesale rebalancing proposal has not been announced as adopted policy.
Long-term electricity supply arrangements and operational flexibility may help particular plants manage some of their exposure, although steel production cannot necessarily move electricity consumption between hours without affecting production, equipment utilisation or delivery schedules. A furnace’s power demand must also be managed within the technical limits of its process and electrical connection.
New renewable generation and network investment could affect power prices over time, but the relationship is not instantaneous. Generating capacity, transmission constraints and the electricity market arrangements governing dispatch and settlement determine how new supply influences the delivered cost of industrial power.
The latest comparison makes the difference between temporary price relief and enduring industrial competitiveness increasingly material. Steelmakers making investment decisions now face a widening reported premium over French rivals, while the policy response and the future cost of electricity remain unsettled.
