Steel industry energy bill up by £1.8bn due to gas crisis – analysis

New analysis of government data by the Energy and Climate Intelligence Unit (ECIU) has found that over the four years since gas prices started to spike, British industry has had to pay an additional £29bn for its gas and electricity compared to the four years before the pandemic [1].

In particular, according to official figures, the UK’s iron and steel industry spent around £1.8bn extra in the first four years of the crisis, compared to the four years before the pandemic, increasing its energy bill by 80% to £4bn, despite production of steel and steel mill products falling by 25% since 2020.

Gas costs increased by the largest proportion, doubling from their pre-crisis average for UK industry overall, despite industrial gas demand falling by 12%. Costs tripled for the steel industry, adding just over £600M as of the end of 2024. 

Electricity bills for industry overall were 60% higher than before the crisis – and similar for steel, adding just under £600M to costs – largely due to high gas prices inflating marginal prices on electricity wholesale markets, although growing levels of renewables diluted this effect by pushing the less efficient gas power plants of the system. 

Costs of other fuels such as oil, diesel and biomass were around 70% higher – and 140% higher for steel, adding a further £600M – pushed up as users switched to those fuels to reduce their exposure to gas and electricity prices.  Although each energy cost increased by around the same amount, the proportional impact was largest for gas which made up the smallest part before the gas crisis.

Commenting on the analysis, Dr Diana Taylor, Managing Director at Future Humber, a business-led organisation that seeks to drive economic growth in the area, said: “This highlights the significant and ongoing impact of volatile gas prices on UK industry – an issue that hits regions like Humber especially hard. As the UK’s leading industrial and energy cluster, the Humber has felt the weight of rising costs across key sectors such as steel, chemicals, and manufacturing. 

“Businesses here are investing in decarbonisation, but the scale of these additional energy costs risks undermining competitiveness and delaying progress. The findings also show the value of clean, renewable energy, which is helping to stabilise electricity prices. With the Humber at the heart of the UK’s net zero transition, accelerating investment in renewables and low-carbon industry is an economic necessity for our region’s future.”

Jess Ralston, Energy Analyst at ECIU, said: “The UK has been particularly badly hit by the gas crisis because gas sets the price for electricity generation 97% of the time. [2] Just in the same way that households saw their energy bills shoot up, industry has been facing astronomical increases in energy costs due to the high price of gas. 

“Policy costs for insulating homes and the early, first-generation renewables have gradually been stripped away, so they are minimal compared to the key driver of the surge in industrial energy costs which is simply volatile gas prices. Anyone suggesting otherwise is well wide of the mark.”

“More British renewables will bring forward more stable prices, more North Sea gas won’t as it’s sold to the highest bidder in an international market. A lack of a plan for the industry and the recent high gas price has jeopardised the future of British-made steel. Given the experience of the gas crisis, the future of the industry is more dependent on stable prices, which could in part be delivered by more British renewables generating at fixed prices.”

Policy changes introduced by the previous Government exempted energy-intensive industries from 60% of network costs and all costs related to key renewables policies, but prices are still above those paid by competitors in France and Germany.  Analysis has found that, in most of the years since 2016-17 when the data was first compared, the wholesale cost component of UK steel sector electricity prices has – by itself – been larger than the total price paid by competitors in France or Germany – for their wholesale, networks and policy costs combined.  This has led industry leaders to call for new renewables and nuclear power plants, plus market reform, to reduce the price impact of gas power stations.

UK Steel, a trade association for UK steel manufacturers, has stated that “the main driver” of disparities in electricity prices between the UK and Europe “is now wholesale electricity costs, driven by the UK’s reliance on natural gas power generation”. [3]

The Energy Crisis Commission recommended that support schemes like the British Energy Supercharger and Industrial Energy Transformation Fund should be continued, and that targeted support for sectors such as steel, for example through a Green Steel Innovation Fund, would be beneficial. [4]

Analysis by CBI Economics for the ECIU [5] found that the net zero economy grew by 10% last year, three times more than the economy as a whole.

Recent analysis has found that wind, solar and hydro have helped to make UK electricity ‘more British’, with the proportion of imported energy used for our power supply falling from two-thirds (65%) to just under half (50%) in a decade. [6]

You can view the report here.