OPINION | Federico Benito Donà, Manager, Energy and climate

Four years since the outbreak of the Russia-Ukraine war, the European steel sector continues to face the worst energy crisisin its history.

“The sector faces electricity and natural gas prices two to three times higher than those of their competitors in the U.S., India, China and Middle East and North Africa (MENA) regions.”

At the same time, the sector’s decarbonisation pathway - heavily dependent on access to abundant and affordable fossil-free energy, is under growing pressure. By 2030 the sector will require around 165T Wh of fossil-free electricity and 2 million tonnes of renewable hydrogen annually to deliver the transition. More than 60 low-carbon steel projects are planned across Europe, representing a reduction of 80 million tonnes of CO2 emissions – equivalent to 55% reduction compared to 1990 levels.

However, persistently high energy costs are now putting these investments at risk.

The challenge extends well beyond wholesale electricity prices, which continue to average above €85/MWh compared with historical levels closer to €45/MWh.  Industrial consumers also face: 

• rising ETS indirect costs passed-through  in electricity prices;
• doubling of network tariffs for the financing of grids functioning and operations ; 
• the shadow costs of missing flexibility in the electricity system (e.g., rising balancing and adjustment fees, lack of storage);
• and increased costs for ensuring security of electricity supply.

At the same time, the European hydrogen economy has failed to develop and a pace initial anticipated. Hydrogen production capacity remains limited, infrastructure deployment is lagging behind schedule and the levelised cost of renewable hydrogen remains stubbornly high – currently estimated between €7-12/Kg. As a result, this is leaving many in the steel sector with little to no opportunity to decarbonise its production processes and reduce CO2 emissions.

Steel is not a sunset industry. It is the backbone of Europe's economy and essential for construction, automotive, defence, packaging, and the energy transition itself. Wind turbines, EV chassis and grid infrastructure all depend on steel.

A Europe without a domestic steel industry is a Europe dependent on imports for the very materials it needs to build its future.

The stakes therefore go beyond just industrial economic competitiveness.

Europe's steel sector directly employs around 330,000 people and supports millions more in downstream industries. These are skilled, well-paying jobs often in regions with few alternatives. Losing them to cheaper-energy competitors overseas would be an industrial and social setback from which recovery would take decades.

With energy prices rising even further due to the U.S.-Iranian conflict and the closure of the Hormuz-Strait, the European Commission has responded. It published its Clean Industrial Deal, Action Plan on Affordable Energy and Accelerate-EU Strategy to support industries in the short-term while maintaining the trajectory toward climate-neutrality.

However, while these initiatives represent important political signals, they have so far failed to deliver sufficient relief for energy-intensive industries facing an urgent competitiveness crisis.

To restore industrial competitiveness and preserve the steel transition, the sector is calling for urgent action in the following areas:

1. An EU-wide target for total energy costs of €50/MWh by 2030, including electricity prices and associated costs;
2. Requiring electricity suppliers benefiting from two-way Contracts for Difference to reserve part of their generation capacity for Power Purchase Agreements (PPAs) for energy-intensive sectors;
3. Introduce targeted network rebates for energy-intensive industries exposed to international competition;
4. Improve the conditions for access to the temporary price relief under the Clean Industrial Deal State Aid Framework (CISAF);
5. Maintain and enhance ETS indirect costs compensation mechanisms;
6. Improve affordability and availability of PPAs by reducing costs associated with low-carbon electricity profiling and industrial baseload demand;
7. Conduct a comprehensive review of the current electricity market design framework, including alternative models such as the Segmented-Pay as Clear and the Price-Shock Absorber;
8. Establish a demand-side support instrument for the uptake of hydrogen by utilising ETS revenues for energy-intensive sectors

The EU Electrification Action Plan, the future proposal on network tariffs design announced in Accelerate-EU (Energy) and the revision of the EU Hydrogen Strategy will be decisive for restoring indus- trial competitiveness, accelerating steel decarbonisation and ensuring that Europe’s clean transition remains anchored in its industrial base.