Gas prices widen the UK’s power-cost gap
In Britain, gas plants usually set electricity prices, even when power comes from cheaper sources like wind and solar. So when gas prices rise, electricity costs rise too.
France’s prices depend mainly on its nuclear reactors, and coal still plays a large role in Germany. The gap with France had narrowed to £18/MWh last year, a long way below the £153/MWh peak of 2022, after Russia’s invasion of Ukraine. The gap with Germany has eased slightly this year, to about £12/MWh.
Electric furnaces will make the gap costlier
UK steelmaking is moving from coal-fired blast furnaces to electric arc furnaces, which melt scrap steel using electricity. An arc furnace uses roughly 0.5MWh per tonne of steel, and UK Steel expects the sector’s electricity use to roughly double after the switch.
The largest project is Tata Steel’s £1.25bn furnace at Port Talbot, backed by a £500m government grant. A delay in connecting it to the grid has pushed its start date from early 2028 to late 2028 or early 2029, and Tata has reportedly asked ministers for more support.
Relief so far leaves the wholesale price untouched
The government removed most policy costs from heavy industry’s electricity bills last year. From April 2026, it also raised compensation for grid network charges from 60% to 90%, matching Germany. From 2027, the British Industrial Competitiveness Scheme will exempt eligible manufacturers from several policy levies on their bills. Ministers say it will cut bills by up to 25% for more than 10,000 manufacturers.
None of these measures changes the wholesale price, which UK Steel now names as the main cause of the gap.
UK Steel’s answer is a £51m price cap
UK Steel proposes a cap on the electricity price steelmakers pay. The government would cover the difference when market prices go above the cap, and the industry would pay the government when prices fall below it. The trade body estimates the net cost at about £51m a year. Director General of UK Steel, Peter Brennan said British steelmakers are “being asked to compete with one hand tied behind their backs”.
The Budget on 28 October is the next chance for ministers to respond to UK Steel’s proposal.