UK Steel welcomes the Industrial Strategy’s steps to deliver competitive industrial electricity prices

UK Steel can reveal that the Government has adopted three key recommendations for its newly unveiled modern Industrial Strategy to help tackle industrial electricity prices:

1. Increase of Network Charging Compensation to 90% from 2026, matching what is provided in Germany and France – This will reduce power prices by an estimated £6.5/MWh and save the steel industry £14.5m per year. 
2. Continuation of the indirect compensation scheme, which compensates the steel industry for the carbon taxes paid via the electricity bills – If this had not been renewed, industrial electricity would have increased by £20/MWh and increased electricity bills by £45m for the steel sector. 
3. British Industrial Competitiveness Scheme from 2027, which will provide an exemption for Renewables Obligation, Feed-in Tariffs and the Capacity Market for less electro-intensive businesses – UK Steel estimates that this will reduce power prices for eligible manufacturers by £43/MWh, which the Government states would represent up to 25% of manufacturers electricity bills.

The uplift to Network Charging Compensation from 60% to 90% in line with what is provided in Germany will reduce industrial electricity prices by £6.5 per megawatt hour (MWh) for the steel industry – an incredible £14.5 million per year.

Despite this impactful cut to electricity costs, there remains a £10-16 per MWh difference between European electricity costs, which slaps £36 million per year on steel bills. The reason for the energy intensive industries disparity is wholesale electricity costs, driven by the UK’s reliance on natural gas power generation.

Tackling network charges, indirect compensation and the new British Industrial Competitiveness Scheme are welcome steps on the road to creating affordable energy and an effective business environment. UK Steel has the solution to eliminate industrial electricity price disparities between the UK and its European competitors. In collaboration with the respected energy consultancy Baringa, UK Steel proposed the introduction of a two-way Contract-for-Difference to peg wholesale prices to those in France and Germany, thereby eradicating the price disparity.

Gareth Stace, Director General at UK Steel, said:

“The Government has rightly taken action to reduce industrial electricity prices and modelled its new policies on UK Steel’s solutions. UK power prices have for too long damaged the profitability and growth of the steel industry hand over fist, driving away investment and opportunities decarbonise our production.

"The Industrial Strategy is a step in the right direction towards competitive electricity prices and a better, more effective business landscape, but we are climbing slowly up the foothills of the mountain we need to climb. This is an important milestone, but we are not out of the trenches yet. The Industrial Strategy must be the first of many changes if we are to fully unlock the potential of the UK steel industry to back the growth and stability of our economy.”

Contact details  

Louise Young, Campaigns and Engagement Manager, UK Steel 07388 370176 | Lyoung@makeuk.org

Notes to editors

Electricity price disparity: 

• Steel production is incredibly electro-intensive, and power 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.
• Currently, the UK steel industry’s electricity use is equivalent to that of 800,000 homes, and an electric arc furnace uses approximately 0.5 MWh of electricity per tonne of steel.
• The average price faced by UK steelmakers for 2024/25 is £66/MWh compared to the German price of £50/MWh and French price of £43/MWh. This indicates a price disparity of £16-22/MWh, meaning the industry will pay £37-50 million more for their electricity than European competitors.
• The previous government introduced a 60% compensation for network charges, which is lower than the 90% offered by Germany and France, leaving industry facing network charges up to 10 times that of their European counterparts.
• Today, the Government has increased this to 90% and brought network charges in line with European competitors, following UK Steel’s recommendations.
• The Labour Government stated in its manifesto that “British industry is also held back by high electricity costs, which has often made investing here uncompetitive. Labour’s clean energy mission will drive down those bills, making British businesses internationally competitive [...]”.
• UK Steel, its members, and Baringa published a report in March 2025 on how to create competitive electricity prices by introducing a two-way Contract-for-Difference to peg wholesale prices to those in France and Germany. A similar scheme is already implemented in Italy and France.

The two-way Contract for Difference mechanism, proposed by UK Steel to tackle wholesale costs, will: 

• Provide price parity with the lowest-cost European competitors by fixing electricity prices for the steel sector, increasing global competitiveness.
• Protect against price volatility, enabling long-term planning and investment in low-carbon technologies such as Electric Arc Furnaces.
• Share risk and reward, with the sector paying back the Government when prices fall below the agreed strike price.
• The proposed CfD is a practical and future-focused solution to support the UK steel sector and drive its green transition. The mechanism will be essential to the Government’s Steel Strategy in order to create a more competitive business landscape for the steel industry, attract investment, and enable wider decarbonisation.