UK steelmakers face worst electricity cost gap with EU in three years

British steelmakers are paying almost £30 more per megawatt hour of electricity than their French competitors—the widest gap in three years. The surge stems from a collision of geography, geopolitics, and market structure that has left the UK steel industry in an increasingly precarious position just as the government has made reindustrialization a centerpiece of its economic strategy.

The immediate trigger was geopolitical. When the US and Israel intensified military operations against Iran, Iran responded by closing the Strait of Hormuz, a chokepoint through which roughly a third of the world's seaborne oil passes. The blockade sent global gas prices soaring. For the UK, this was particularly painful because British electricity markets are structured so that gas prices set the rate for all power generation—even wind and solar, which cost far less to produce. France, by contrast, generates most of its electricity from nuclear reactors. Germany relies heavily on coal. Neither faces the same exposure to volatile gas markets. The result: a cost disadvantage that has widened from £18 per megawatt hour last year to nearly £30 now, according to analysis by UK Steel, the industry lobby group.

This matters because steel is not a luxury good made in isolation. About 75 percent of British steel exports go to the EU, worth roughly £3 billion annually. When British steelmakers pay substantially more for electricity than their French or German counterparts, they cannot simply absorb the difference. They either raise prices—making their products less competitive in the European market—or they accept lower margins. Neither option is sustainable at scale.

The government has already taken some action. Under Prime Minister Keir Starmer, most of the policy-driven costs added to electricity bills for heavy industrial users were removed last year. The government also announced measures on Monday aimed at supporting over 100,000 job opportunities across eight key growth sectors, including advanced manufacturing. A spokesperson emphasized that the government has reduced electricity bills by up to 25 percent for more than 10,000 manufacturing businesses and cut costs for the most electricity-intensive operations by around £1 billion per year.

But the industry says it is not enough. Peter Brennan, director general of UK Steel, framed the problem bluntly: British steelmakers are being asked to compete with one hand tied behind their backs. He argued that direct subsidies are the only realistic option in the short term. UK Steel has proposed a price cap that would cost roughly £51 million annually to implement. Under the scheme, the government would pay the difference when prices exceed the cap, while the industry would reimburse the government if prices fall below it. The alternative—expanding renewable energy capacity fast enough to reshape the electricity market—is a longer-term project that does not solve the immediate crisis.

The timing is awkward for the government's reindustrialization agenda. The gap with France had actually narrowed over the previous three years, falling from a peak of £153 per megawatt hour in 2022, when Russia's invasion of Ukraine triggered a global energy crisis. That suggested the worst might be passing. The recent widening to £30 signals that structural vulnerabilities remain. The gap with Germany, by comparison, is smaller—about £12 per megawatt hour this year—but still significant. For a government betting that manufacturing can be rebuilt as a pillar of the British economy, electricity costs have become the most visible and stubborn obstacle.