Abandoning ‘Power Pools’ hampers steel electrification: UK Steel

The UK government’s abandoning of the Green Power Pools policy proposal is a blow to the steel industry’s electrification aspirations. The move will likely hit steelmakers with higher wholesale electricity prices for many years before new generation is deployed in their locality, says UK Steel.

The Green Power Pool was one of the key proposals in the government’s Review of Electricity Market Arrangements (REMA) consultation process. 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.

The government has however 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, UK Steel says. Steelmakers cannot however relocate to lower-price zones.

With a further switch to electric arc furnaces, it is expected that the sector’s electricity consumption will roughly double.

“Government is missing a golden opportunity to ensure electrified, green steelmaking can thrive in the UK,” UK Steel energy and climate change policy manager Frank Aaskov says in a note sent to Kallanish.

“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 [$150m] 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,” Aaskov continues.

“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,” Aaskov concludes.

Adam Smith Poland