UK Steelmakers Face Worst Electricity Cost Gap in Three Years 2026

UK steelmakers are facing their worst electricity cost disadvantage in three years, with the premium over French rivals reaching almost £30 per megawatt hour (MWh), according to analysis by lobby group UK Steel. The gap has widened after the US-Israeli war on Iran caused global gas prices to surge, pushing UK electricity prices even higher.

Energy prices have long been cited by businesses as a major factor holding back British industry. For Andy Burnham, they represent perhaps the biggest obstacle to his goal of "reindustrialising" the UK. The latest figures underscore the challenge of maintaining a competitive manufacturing base when energy costs are so far out of line with European neighbours.

Why UK Electricity Prices Are So High

Analysts attribute the UK's high electricity prices to its heavy reliance on gas for power generation. Gas is also crucial for cleaner steelmaking using electric arc furnaces, making the UK particularly vulnerable to gas price spikes.

The way the UK electricity market is set up means that the wholesale gas price determines the price of electricity even from sources that cost much less to produce, such as wind or solar power. This marginal pricing system means that when gas prices soar, so do electricity bills for all consumers, including steelmakers.

In contrast, France's electricity prices are mainly determined by its nuclear reactors, which provide stable, low-cost power. Germany, meanwhile, still relies heavily on coal for generation, which also affects its price dynamics. The UK's gas dependence leaves it exposed to global market shocks.

Iran War Sparks Gas Price Surge

The recent surge in global gas prices was triggered by Iran's closure of the Strait of Hormuz in response to Donald Trump's bombing campaign. This key chokepoint for global oil and gas shipments has caused prices to spike, with knock-on effects for electricity prices in gas-dependent economies like the UK.

UK Steel's analysis shows that the premium paid by British industry over its French counterpart has risen to almost £30/MWh, the highest level in three years. This puts UK steelmakers at a significant cost disadvantage when competing for contracts and investment.

Impact on UK Steel Exports and Competitiveness

Comparisons with European rivals are particularly important for the UK because the EU is often the main market for British manufactured products, including about 75% of exported steel. Higher electricity costs make UK steel less competitive in these key export markets.

The cost gap also affects decisions about where to locate production. Energy-intensive industries like steel require stable and affordable power, and persistent cost disadvantages can deter investment and lead to job losses.

• UK steelmakers pay almost £30/MWh more for electricity than French rivals, the widest gap in three years.
• The UK's reliance on gas for power generation exposes it to global price shocks, such as those caused by the Iran conflict.
• Marginal pricing means gas prices set electricity prices even when cheaper renewables are available.
• France's nuclear-dominated system provides more stable electricity costs.
• The EU is the main market for about 75% of UK steel exports, so cost competitiveness is crucial.

How the UK Compares with European Rivals

The table below summarises key differences in electricity price determinants and recent cost premiums for steelmakers in the UK, France, and Germany.

The data highlights how the UK's energy mix leaves it more exposed to volatile gas markets than its neighbours. While Germany's coal reliance has its own environmental and cost implications, the UK's gas dependence creates a direct link to global fossil fuel prices.

What This Means for Reindustrialisation

For policymakers like Andy Burnham, who has championed reindustrialisation, the electricity cost gap is a major hurdle. Without competitive energy prices, attracting and retaining energy-intensive industries like steel becomes difficult.

The UK government has faced calls to reform the electricity market to decouple gas prices from electricity prices, but progress has been slow. Meanwhile, steelmakers continue to bear the brunt of volatile global energy markets.

The closure of the Strait of Hormuz and the resulting gas price surge illustrate how quickly external events can impact UK industry. As the world transitions to cleaner energy, the UK's gas dependence may become an even greater liability unless addressed.

What to Watch Next

Attention will focus on whether the UK government introduces measures to shield energy-intensive industries from high electricity costs. Potential solutions include contracts for difference for renewables, market reforms to reduce the role of gas in setting prices, and direct support for steelmakers. The background to this story is set out in Andy Burnham Cuts VAT on Electricity Bills to Ease Costs. A related thread runs through Andy Burnham Cuts VAT on Electricity Bills to Ease Living Costs. Earlier coverage in Cost of Living Crisis: Burnham's VAT Cut on Electricity shows how the argument developed.

At the same time, global gas prices will remain a key variable. Any further escalation in the Middle East could push prices even higher, widening the cost gap further. The steel industry will be watching closely for signs of relief. A closer look at the same subject appears in Burnham's Great British Grid: Public Control or Private Competition. Anyone following the wider picture can start with UK Energy Price Cap Rises 4% to Highest in Three Years. The same theme surfaces in Oil Price Surges 3% as US-Iran Tensions Drive Energy Market Volat, which takes a different angle.

For businesses, the lesson is clear: energy costs are a critical factor in competitiveness, and the UK's current market design leaves it vulnerable. As the debate over industrial strategy continues, the plight of steelmakers serves as a stark reminder of the challenges ahead. Context on how this played out before sits in UK Economic Growth Slows as Iran War Drives Energy Prices. A companion piece, Ukraine War Forces Closure of Largest Steelmaker Plant, approaches the same subject from another angle.

The electricity cost gap is not just a steel industry issue; it reflects broader challenges for UK manufacturing. As energy prices continue to fluctuate, the need for a coherent industrial energy policy becomes ever more urgent. For a deeper look at how trade tensions and tariffs affect UK industry, see our analysis of how Trump tariffs put the UK at a disadvantage to the EU. The interplay between energy costs and trade policy will shape the future of British manufacturing.

In the meantime, steelmakers are calling for action to level the playing field. Without decisive steps, the UK risks losing its steel industry to competitors with cheaper, more stable energy supplies. The coming months will be critical in determining whether the government heeds these warnings.