Steel production and processing is a highly energy intensive process, with energy making up a substantial proportion of the cost of converting globally priced raw materials into finished steel products for consumers. Steel production’s energy-intensive nature leads to high electricity consumption, and these costs can represent up to 180% of steel producers’ Gross Value Added (GVA) in the UK. With a switch to electric arc furnaces, it is expected that the sector’s electricity consumption will roughly double.
Despite Government’s most recent (and very welcome) actions to tackle prices in the Industrial Strategy, electricity costs are still up to £12 per MWh higher than our nearest competitors in Europe, which is adding a whopping £26 million to UK steel producers’ electricity bills.
The main driver of the price disparity is now wholesale electricity costs, driven by the UK’s reliance on natural gas power generation. Further reforms are needed to reduce wholesale electricity prices for the steel industry, such as an ARENH-like industry tariff or wholesale market reforms.
An electric arc furnace (EAF) uses roughly 0.5MWh of electricity per tonne of steel. When the industry has fully electrified, its consumption will roughly double, but the sites switching from blast furnace to EAF will see their power use almost quintuple. This is why we need affordable electricity now and in the future.