UK Government Ditches Key Reforms to Deliver Low Electricity Prices for Steel Industry

Low Electricity Prices for Steel Industry

The Government has today formally abandoned the Green Power Pools policy proposal in its Review of Electricity Market Arrangements.

The Review, known as REMA, is the Government’s flagship reform of the electricity market where it seeks to change key parts of how electricity is priced, how renewables are paid, and the Capacity Market. Power Pools have been adopted in France, Italy and Greece and were proposed by Government because of their ability to deliver a more efficient energy system and provide lower prices for industry. Major supporters of this model included energy systems experts Professor Michael Grubb of UCL, Aldersgate Group, Green Alliance and UK Steel to name a few.

The Government confirmed that it will only proceed with a locational marginal pricing (Zonal LMP) model. Zonal LMP would separate the network into many individual zones, each zone with its own price to encourage new generation near demand and encourage power users to locate near existing generation. Steelmakers cannot relocate to lower-price zones and will likely be hit with higher wholesale prices for many years before new generation is deployed in their locality.

Steel producers in the UK pay nearly two times as much as Germany and France’s industrial electricity prices. Over the past decade, the UK steel sector has suffered prices between 60% and 80% higher than in Germany and France. 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 further switch to electric arc furnaces, it is expected that the sector’s electricity consumption will roughly double. The Green Power Pool was one of the key proposals in the REMA consultation process which could have offered significantly lower power prices to trade-exposed, energy-intensive industries like steel, but this has now been cut.

Frank Aaskov, Energy and Climate Change Policy Manager, UK Steel, said: 

It is incredibly disappointing that the Government has dropped the Green Power Pool proposal, which promised to deliver competitive electricity prices for the steel industry. Government is missing a golden opportunity to ensure electrified, green steelmaking can thrive in the UK.

 

As the steel industry switches to electric furnaces to reach vital Net Zero targets, we must not lose sight of how important electricity costs are in the move to green steel. We paid £117 million more for our electricity in 2023 than our European competitors. Discarding the Green Power Pool proposal makes it unclear how the Government seeks to fix this.

 

The Government has worked hard to deliver its Industry Supercharger package to reduce industrial electricity costs, only for it to go forward with wholesale market reforms which could increase power prices. This is like giving with one hand, while taking with another.”

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