Industrial Electricity Can Cost More Than a Steelmaker’s Entire Value Added

There is a statistic in UK Steel’s electricity price research that stops the argument about energy costs being a matter of margin.

Power can represent up to 180% of a British steel producer’s gross value added. Not 18%, and not a large share of costs. More than the entire value the business adds between buying its inputs and selling its output.

That number defines the industry’s position better than any comparison of tariffs. For a producer in that situation, the electricity price is not an operating expense to be managed. It is the business.

What the gap actually is

UK Steel’s research, published in September 2025, found that British industrial electricity prices sat 40% above those in France and Germany during 2025/26, adding roughly £41 million to UK steel producers’ bills in that year alone.

The trajectory is improving. In 2026/27 the gap is expected to narrow to somewhere between 14% and 25%, which would still add about £26 million a year. Narrowing is not closing, and the cumulative effect is substantial: since 2016/17, UK steelmakers have paid £845 million more for electricity than their French competitors and £721 million more than their German ones.

Gareth Stace, UK Steel’s Director-General, framed it as a handicap rather than a crisis: “The UK steel industry has a hand tied behind its back as it faces electricity prices up to 25% higher than its European competitors, let alone its global counterparts.”

The phrase “let alone its global counterparts” is doing real work in that sentence. The European comparison is the flattering one.

What 180% of value added means in practice

Gross value added is a specific thing, and understanding it is what turns that figure from striking into alarming.

GVA is what remains of a company’s revenue after it pays for everything it buys in: raw materials, energy, transport, services. It is the pool from which wages, profit, tax, interest and every pound of future investment must all be paid. For most manufacturers it is a comfortable multiple of any single input cost.

When an electricity bill reaches 180% of that pool, the relationship inverts. The business is spending nearly twice as much on power as it generates in total added value, which is only survivable because scrap and ore and the rest are accounted for separately. What it means operationally is that a small percentage movement in the power price swings the entire economics of the plant, and no amount of efficiency elsewhere can offset it.

It also explains why a 14% to 25% price disadvantage is treated as existential rather than irritating. A firm whose energy bill is a tenth of its value added can absorb paying a quarter more for it; the effect is a couple of percentage points on the cost base. A firm at 180% cannot, because the same percentage lands on a number larger than everything it has to pay everyone with.

This is the difference between an energy-intensive industry and an ordinary one, and it is why steel, chemicals, glass, cement and paper are treated as a distinct policy category across Europe rather than folded into manufacturing generally. Their economics are dominated by a single traded input whose price is set by national market design rather than by anything the company controls.

It is also why the industry’s argument is about price formation rather than efficiency. There is no plausible operational improvement that closes a gap of this shape.

The discount arrives a year after it starts

Government has acted, and the mechanism is worth understanding because its timing is the part that bites.

The Network Charging Compensation discount, which offsets what large users pay toward the cost of the grid itself, rises from 60% to 90% from April 2026. UK Steel welcomes the uplift. But compensation is paid a year in arrears, so a discount that applies from April 2026 does not reach a steel producer’s bank account until 2027. The £14.5 million in annual savings is real and it is delayed.

For a business with thin margins and high fixed costs, a year of working capital is not a technicality. The company pays the full charge now and receives the difference later, which means the policy is correct in design and, for twelve months, absent in cash terms.

This is why UK Steel’s asks include backdating the 90% compensation to April 2025, rather than only raising the rate going forward. The rate change fixes the arithmetic. The backdating would fix the timing.

Why electrification makes it worse before better

The exposure is about to increase, and by design.

The industry is investing in electric arc furnaces, which melt scrap steel using electricity rather than reducing iron ore with coke in a blast furnace. That is the central decarbonisation route for steel, and it converts a carbon problem into an electricity problem. UK Steel expects the sector’s electricity consumption to roughly double as a result. Current usage is already equivalent to about 800,000 homes.

Doubling consumption while paying a premium of 14% to 25% over European competitors means the disadvantage compounds precisely as the industry does what policy asks of it. A firm being urged to electrify, in a country where electricity is expensive, is being asked to increase its exposure to its own worst input price.

That is not an argument against electrification. It is an argument that the power price question has to be settled before the investment decisions are made rather than after, because an electric arc furnace is a long-lived asset bought on a view of decades of electricity costs.

Wholesale prices, not network charges

UK Steel’s principal recommendation is not more compensation but a change to how wholesale power is priced. It proposes a rebalancing scheme that would align GB wholesale prices with the lowest-cost European competitor, delivered through two-way Contracts for Difference, an approach recommended by the consultancy Baringa.

The distinction matters. Network charges are the cost of moving electricity, and compensation schemes address them directly. Wholesale prices are what the electricity itself costs, and in Britain those are set by a market design in which the marginal generating unit sets the price for all. UK Steel notes that unlike France, Italy, Spain and the UAE, the UK has no mechanism to insulate energy-intensive industry from that outcome.

Compensating for network charges while leaving wholesale prices untouched treats the smaller of the two components. It is the difference between a rebate on delivery and a change in the price of the goods.

The same complaint from a different industry

Steel is not alone in this, and the corroboration is recent. When the Society of Motor Manufacturers and Traders published its half-year figures on 30 July, its policy asks led with exactly the same point: that the UK’s industrial electricity prices remain uncompetitive even after the British Industrial Competitiveness Scheme, and must be addressed.

Two trade bodies representing very different manufacturing sectors, reporting in different months, naming the same constraint first is a stronger signal than either would be alone. Vehicle assembly is far less electro-intensive than steelmaking, so if the cost is material to automotive it is close to determinative for steel.

It also sits inside the wider pattern in this quarter’s data, where UK manufacturing output has been accelerating even as the headline index slips, and where strong aggregate numbers keep concealing a narrower reality underneath. Production can rise on existing plant. New plant is a decision about the next twenty years.

What would settle it

UK Steel sets out three priorities: the wholesale rebalancing scheme, backdating the network charge compensation to April 2025, and tracking industrial energy price disparities between countries so the gap is measured rather than assumed.

The third is the least dramatic and possibly the most useful. Much of this argument turns on numbers that each side calculates for itself, and a published, agreed comparison would at least establish what the disagreement is about.

Stace’s framing of the stakes is the industry’s own: competitive power prices are what would let Britain build “a modern, low-carbon steel industry”. The alternative is not an expensive steel industry. On a cost that can exceed the whole of a producer’s value added, the alternative is not having one.

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Will Lisil

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