Grant Funding Agreement

Tata Steel and the UK Government have signed a £500 million grant funding agreement. This will enable Tata Steel to install a state-of-the-art Electric Arc Furnace (EAF) at its Port Talbot steelworks in Wales. The investment represents the largest commitment to the UK’s modern steel sector, with Tata Steel contributing an additional £750 million.

Challenges in the Steel Industry

The national steel industry faces difficult market conditions. High costs and a global oversupply have weakened market demand. This competitive landscape has made capital investment challenging for many companies.

Government Support

The Government’s National Wealth Fund has allocated an additional £2.5 billion to attract investment in the UK’s steel industry. This sector is crucial for national infrastructure projects, including offshore wind turbines, transport, housing, and defense.

Need for Affordable Electricity

To support growth, the government must ensure affordable electricity prices. According to UK Steel analysis from September, UK steel producers pay up to 50% more for electricity than competitors in France and Germany. This price difference adds £37 million to the costs of the UK steel sector. Switching to more EAFs is expected to double the sector’s electricity consumption.

Industry Response

UK Steel Director General Gareth Stace commented on the announcement, stating that the agreement means a brighter future for the steel sector. He emphasized the need for competitive electricity prices and access to quality steel scrap. Stace expressed optimism about the government’s commitment to supporting the steel industry.

Project Overview

• The UK Government and Tata Steel have signed a £500 million grant agreement.
• Tata Steel will contribute £750 million, totaling £1.25 billion for the project.
• New assets at Port Talbot will reduce the UK’s industrial carbon emissions by 7% and emissions at Port Talbot by 90%.
• EAFs will produce various steel products and already supply specialized steel for aerospace and defense.

Electricity Pricing Disparities

The average electricity price for UK steelmakers in 2024/25 is projected at £66/MWh. This compares unfavorably to £50/MWh in Germany and £43/MWh in France. The price gap means the industry will pay £37-50 million more than European competitors.

UK Steel Sector Insights

• Produces 5.6 million tons of crude steel annually, meeting 70% of the UK’s demand.
• Directly employs 33,700 people and supports 42,000 more in supply chains.
• The median salary in the sector is £37,315, significantly higher than the national average.
• Contributes £1.8 billion directly to the UK’s GVA and £3.4 billion to the balance of trade.