Britain’s High Energy Prices May Kill Port Talbot Rescue Plan

  • Date: 11/04/16
  • Kiran Stacey and Michael Pooler, Financial Times

The issue of high energy prices is “the main hurdle in this whole equation” of how to save Port Talbot, Mr Gupta told the Financial Times.

Members of Community Trade Union erect a banner outside the steelworks in Port Talbot, where Business Secretary Sajid Javid will make a second visit to meet managers and workers' representatives. PRESS ASSOCIATION Photo. Picture date: Thursday April 7, 2016. See PA story INDUSTRY Steel. Photo credit should read: Benjamin Wright/PA Wire

Port Talbot steel plant

Sanjeev Gupta’s plan to rescue the Port Talbot steelworks in south Wales by ripping out and replacing its blast furnaces would leave it twice as exposed to Britain’s high electricity prices, according to UK Steel, the trade association.

It found that while the arc furnaces are more modern and efficient, they are twice as dependent on electricity as blast furnaces.

The paper, published on Monday, increases the pressure on the government to offer more energy subsidies to potential buyers of Tata Steel’s UK business.

The report does not mention the plan put forward by Mr Gupta, whose commodities group Liberty House is the only organisation to say publicly it is interested in Port Talbot.

Tata has in the past blamed “cripplingly high” energy costs for the difficulties at its lossmaking UK unit, which has 15,000 employees. The most recent figures from the energy department show that electricity prices paid by large industrial users such as steelmakers are higher than anywhere else in the EU, and double the continent’s average.

This is in part because the UK has imposed a higher carbon price than elsewhere, lifting the cost of electricity produced by power stations fired by fossil fuels.

Electricity is only a relatively small proportion of the cost of running blast furnaces, which produce hot metal from iron ore and coking coal, according to calculations by EEF, the manufacturers organisation.

At the Port Talbot site, Britain’s biggest steel plant, electricity accounts for 7 per cent of overheads, according to UK Steel’s analysis based on figures from the business.

Yet with arc furnaces that melt scrap steel, that figure would rise to 15 per cent, the study shows. The electricity needed for the process in an arc furnace is enough to power a town of 100,000.

Despite running an arc furnace in Cardiff that it says is among the most efficient in Europe, Celsa, a Spanish-owned company, says high energy bills means it struggles to compete with rivals on the continent and elsewhere.

Luis Sanz, Celsa’s UK managing director said: “The huge disparity in electricity costs compared with countries such as Germany and France has significantly damaged our competitive position, and ultimately our business.”

The government points to relief measures, such as a subsidy scheme for industrial users that has paid out £160m since 2013. However, this is dwarfed by the more than €9bn handed out by the German government in that time.

Claire Jakobsson, head of climate and environment policy at EEF, said: “The UK government cannot solve all of the sector’s problems, but where it has the power to act to place the sector on a more even footing it should do so.”

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