UK ‘determined’ to secure competitive future for steel’s energy needs

The UK government is determined to secure a competitive future for the UK steel industry amid the current spike in energy prices, and aims to boost its renewable energy sector to this effect, a spokesperson for the UK’s Department for Business, Energy & Industrial Strategy said Sept. 17.

BEIS will continue with ongoing work to support the steel sector, it said in an emailed statement to S&P Global Platts following calls by London-based Energy Intensive Users Group for the government to immediately lay out plans to safeguard the UK’s steel, fertilizers and other heavy industries in view of current electricity costs that are said to be higher than in other European nations.

As well as urging government actions to ensure security of supply to heavy industry during the winter, EIUG called in a Sept. 17 statement for UK energy market regulator Ofgem to undertake an immediate assessment of the appropriateness of both current market and emergency arrangements, and for BEIS to direct Ofgem to use its powers to address the disparity between UK industrial energy prices and those of near competitors.

Part of the current problem is exposure to gas, according to the BEIS statement.

“The UK benefits from having access to highly diverse sources of gas supply to ensure households, businesses and heavy industry get the energy they need at a fair price,” the BEIS spokesperson said. “Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, home-grown renewable energy sector to further reduce our reliance on fossil fuels.”

“We are determined to secure a competitive future for the UK steel industry and in recent years have provided it with extensive support, including over GPB 600 million to help with the costs of energy and to protect jobs,” the spokesperson said.

UK mills ‘suspend’ some operations

Gareth Stace, director general of producers’ association UK Steel, said in a Sept. 15 statement that some UK steelmakers are being forced to suspend operations at times of peak energy costs. Prices have jumped from levels of around GBP 50/MWh ($68.90/MWh) during 2020, to current spot levels of over GBP 2,000/MWh, he noted, urging government to take action in the run-up to the winter months when electricity prices typically rise further.

“While prices have risen across Europe, wholesale prices have quadrupled in the UK and merely tripled in Germany, when accounting for carbon costs. This exacerbates the already grossly unequal electricity price disparity between UK steelmakers and our European competitors,” Stace argued.

The UK produces around 7 million mt of crude steel a year, around 70% of its annual requirement.

Platts assessed the UK Q4 baseload power contract at GBP179.95/MWh Sept. 15, while further along the forward curve, the year-ahead contract was assessed at GBP 113.34/MWh, both marking all-time records for Platts’ pricing data extending back to 2001.

BEIS sources noted that the UK has highly diverse sources of gas supply and one of the largest liquified natural gas import infrastructures in Europe. The government works closely with the regulator and the gas transmission system operator to monitor gas supply and demand, they said.

“While wholesale gas prices have increased internationally this year, adjustments in contracts continue to balance supply with demand, and we have no reason to suggest this will not continue,” the sources said.

The government has provided more than GBP 600 million in relief to the steel sector since 2013 to make electricity costs more competitive, according to the BEIS statement. In 2019 it announced a GBP 250 million Clean Steel Fund to support decarbonization of the steel sector, supporting its transition to new low carbon technologies and processes, and has published details of a steel pipeline on national infrastructure, anticipated to require around 5 million mt of steel over the next decade.

— Diana Kinch