According to Federico Benito Donà, energy and climate manager at the European Steel Association (EUROFER), the European steel sector continues to face its most severe energy crisis four years after the outbreak of the Russia-Ukraine war. Electricity and natural gas prices remain two to three times higher than those paid by competitors in the US, India, China and the Middle East and North Africa (MENA). At the same time, the sector’s decarbonization pathway, which depends on access to abundant and affordable fossil-free energy, is under increasing pressure.
By 2030, the European steel industry is expected to require around 165 TWh of fossil-free electricity and 2 million mt of renewable hydrogen annually to support the transition. More than 60 low-carbon steel projects are planned across Europe, representing a potential reduction of 80 million mt of carbon emissions, equivalent to a 55 percent reduction compared to 1990 levels. However, persistently high energy costs are putting these investments at risk.
High electricity costs continue to weigh on industry
Donà stated that the challenge extends beyond wholesale electricity prices, which continue to average above €85/MWh, compared to historical levels of around €45/MWh. Industrial consumers also face rising ETS indirect costs passed through in electricity prices, doubling network tariffs for grid operation and expansion, increasing balancing and adjustment costs caused by limited system flexibility and storage capacity, and higher costs to ensure electricity supply security.
He also noted that the European hydrogen economy has developed more slowly than initially anticipated. Hydrogen production capacity remains limited, infrastructure deployment is behind schedule and the levelized cost of renewable hydrogen remains between €7-12/kg. As a result, many steel producers have limited opportunities to decarbonize their production processes and reduce carbon emissions.
Steel industry remains strategically important
Donà emphasized that steel remains essential for construction, automotive, defense, packaging and the energy transition, including applications such as wind turbines, electric vehicle chassis and electricity grid infrastructure. He added that Europe without a domestic steel industry would become dependent on imports for essential materials.
The European steel sector directly employs around 330,000 people and supports millions more in downstream industries. According to Donà, losing these jobs to overseas competitors benefiting from lower energy costs would have long-term industrial and social consequences.
EUROFER calls for €50/MWh energy cost target
Donà stated that rising energy prices linked to the US-Iran conflict and the closure of the Strait of Hormuz have prompted the European Commission to publish the Clean Industrial Deal, the Action Plan on Affordable Energy and the Accelerate-EU Strategy. While describing these initiatives as important political signals, he said they have not yet provided sufficient relief for energy-intensive industries facing an urgent competitiveness challenge. To restore competitiveness and support the sector’s transition, Donà called for an EU-wide target of €50/MWh for total energy costs by 2030, including electricity prices and related charges.
He also advocated requiring electricity suppliers benefiting from two-way Contracts for Difference (CfDs) to reserve part of their generation capacity for Power Purchase Agreements (PPAs) for energy-intensive industries, introducing targeted network tariff rebates for internationally exposed energy-intensive industries, improving access to temporary energy price relief under the Clean Industrial Deal State Aid Framework (CISAF), maintaining and strengthening ETS indirect cost compensation mechanisms, improving the affordability and availability of PPAs, conducting a comprehensive review of the current electricity market design, and establishing a demand-side support mechanism for hydrogen uptake using ETS revenues for energy-intensive sectors.
Donà concluded that the forthcoming EU Electrification Action Plan, the future proposal on network tariff design announced under Accelerate-EU, and the revision of the EU Hydrogen Strategy will be decisive for restoring industrial competitiveness, accelerating steel decarbonization and ensuring that Europe’s clean transition remains supported by its industrial base.