The bottom line
How to make net-zero profitable
The steel and industrial materials sector in the UK is a critical economic and manufacturing driver for Europe, accounting for about 7% of world steel production, revenue of €191bln and more than 300,000 direct jobs – as reported in The Financial Times article Europe’s green steel ambitions falter as energy costs take toll.
Steel is in everything, from bridges and hospitals to wind turbines and electric cars. It is an essential part of the UK economy and our cultural and industrial heritage. And yet, this crucial industry is also one of the most carbon and energy-intensive. McKinsey & Company estimates that producing one tonne of steel creates a similar amount of CO2 as a flight from London to New York.
The sector is therefore under pressure to decarbonise at pace. For these businesses across the UK, the transition to net-zero can feel less like an opportunity and more like a balancing act – one that pits environmental goals against commercial survival. That doesn’t have to be the case.
With the right approach, net-zero can become profitable, not just bearable. This depends on how we modernise, and not just in steel and materials production, but on how they are powered – fundamentally rethinking the energy supply chain and industry’s role within it.
Balancing act
Steel production contributes roughly 7-9% of global CO₂ emissions, with blast furnaces reliant on coking coal and high temperatures. In the UK, the sector is under pressure to electrify processes, shift to hydrogen and invest in carbon capture – all of which require abundant, affordable and stable electricity.
However, the challenge is immense and multifaceted. It’s not just about sourcing low-carbon inputs, but also about tackling structural barriers in energy costs and infrastructure that undermines industrial competitiveness.
Electricity costs for UK industrial users are among the highest in Europe. In the latest Office for National Statistics data, electricity prices for UK industrial users were almost 50% higher than in France and Germany, and four-times higher than the US and Canada.
Even when clean energy is produced at low cost, electricity prices remain high because gas still sets the market rate most of the time – over 98% in some cases, according to a paper from the UCL Institute for Sustainable Resources on The role of natural gas in electricity prices in Europe. This pricing structure means that clean energy does not always translate into lower bills, limiting the financial incentives for electrification.
Grid constraints are fast becoming the industrial decarbonisation story of the decade. These physical and operational limits in the electricity network – such as insufficient local capacity, outdated infrastructure, or bottlenecks in transmission – prevent new renewable energy projects connecting and industrial users from accessing the power they need.
Without broader grid and pricing reform, we risk slowing the momentum of decarbonisation and missing out on the full economic and industrial benefits of clean energy.
The UK Climate Change Committee’s 2024 Progress Report called out delays in grid connection as a “critical barrier” to energy transition. Some new projects are now being quoted connection dates as late as 2035, particularly in regions like South Wales and the Midlands.
These same areas are key hubs for steel and industrial manufacturing, sectors that rely on continuous, high-volume power. Although offshore wind and nuclear capacity are growing, many industrial users still lack access to the energy infrastructure required to decarbonise their operations quickly, affordably and at scale. This bottleneck threatens to stall progress on climate goals and threatens the future viability of critical UK industries.
Reframing decarbonisation
For UK steel and industrial materials firms, there is a narrowing window to move from cutting carbon just to meet regulations to cutting it in ways that saves money and boosts long-term strategy. The pendulum must instead swing from seeing decarbonisation as a regulatory burden, to embracing it as a competitive advantage and growth driver.
Across Europe, industrial decarbonisation is becoming a differentiator. The EU’s Carbon Border Adjustment Mechanism is already reshaping markets. From 2026, UK exports of steel and aluminium to the EU will face carbon-linked tariffs unless backed by verifiable emissions reductions, which will push firms to decarbonise or risk losing access to key markets.
And this is without considering customers directly. Major producers, from automotive to infrastructure developers, are beginning to ask harder questions about emissions footprints. In the coming years, green procurement will likely become a condition of doing business, not just a competitive bonus.
When cutting emissions also cuts costs, it’s a clear business win. But to get there, businesses need practical solutions, backed by clear policies and smarter funding.
This is where decentralised solutions come in. Behind-the-meter generation (BTM) refers to clean energy produced and used onsite or locally, avoiding connection to the National Grid and reducing exposure to volatile energy markets, transmission losses and connection queues.
For example, if an industrial site installs rooftop solar panels or connects to a nearby wind farm, it can use the energy it produces onsite instead of buying expensive electricity from the grid during peak times. This helps lower electricity bills and makes it easier to know exactly how much carbon is being saved.
There is a plethora of examples of successful BTM development globally. California, Australia and Germany have all seen a relatively rapid uptake in industry self-generation over the last 10-15 years.
While uptake in the UK has been slower than necessary, the several successful case studies that do exist also need to be championed, demonstrating how the model applies to our unique energy, land development and political environment.
Importantly, BTM does not solve the entire energy challenge, but it reduces dependence on systems that may take a decade to modernise. It provides a bridge to a decarbonised future while delivering tangible benefits today.
Behind-the-meter generation also offers advantages beyond energy savings. Power consumed directly at the point of use can count towards verified Scope 2 emissions reductions – increasingly important for environmental, social and governance reporting, financing and stakeholder trust.
At a macro level, these projects support broader system resilience. By generating locally, they reduce load on the grid, help manage peak demand and minimise the need for expensive transmission infrastructure. For the UK, whose grid investment gap is estimated at over £50bln by 2030, this is paramount for both economic and climate outcomes.
The BTM solutions can also spur regional economic activity. Installing systems means jobs in construction, electrical services and maintenance – particularly in regions with legacy infrastructure and high unemployment.
Not so fast…
Despite these benefits, decentralised energy remains underutilised across UK industry. Planning is a potential barrier. Even straightforward installations can take up to a
year to navigate through local authorities, often due to unclear policy alignment or resourcing gaps.
Financing remains an obstacle for some mid-market firms. Long payback periods or uncertainty over incentives can deter investment, particularly when paired with operational pressures such as fluctuating commodity prices and global supply chain volatility.
The most critical barrier remains policy. Most existing incentive frameworks, like Contracts for Difference, are geared toward large-scale generation. There is little dedicated support for industrial BTM, storage or private-wire infrastructure, even where it delivers system benefits.
This inertia creates a catch-22 – industry needs flexible solutions, while the market and regulation framework lag behind and steelmakers get caught in a costly gridlock.
Unlocking profitability
Industry-led solutions, such as BTM, are a strong route to unlock profit. However, we also need the government to incentivise and support these practical, on-the-ground solutions for a better energy transition.
I would suggest the following three policy changes as a great starting point:
- Recognise industrial users as system assets Industrial firms should be integrated into energy planning, and not an after-thought. Priority access for energy-intensive sectors, combined with demand-side incentives, could fast-track low-carbon investment and unlock new business models.
- Create flexible planning and procurement mechanisms National guidance must clarify that local, industrial, clean energy projects, including BTM, must be strategic priorities. Streamlined processes, pre-approved design templates, or industrial energy zones could help accelerate deployment and reduce administrative burden.
- Support investment in decentralised infrastructure Accelerated capital allowances, energy performance-linked tax reliefs and tailored industrial energy contracts could help build a competitive energy landscape for the steel sector. These would align with wider net-zero goals without requiring ongoing subsidies – enabling sustainable, market-led growth.
The stakes are high and the window for action is closing rapidly. For the UK, this is not just a climate question, but an industry priority. Decarbonised steel, concrete and base materials are essential inputs for the infrastructure, housing and clean tech needed to meet national climate goals.
We cannot afford to delay. The UK risks falling behind unless it urgently bridges the gap between energy transition policy and practical industry needs.
The good news? The sector doesn’t need a radical reinvention. It needs certainty and energy systems that serve the businesses driving the transition.
Profitability and decarbonisation are not mutually exclusive. The task now is to build the systems – technical, regulatory and financial – which make them work together.
This requires coordinated effort, innovation and, above all, a mindset that sees net-zero as a pathway to long-term industrial competitiveness and resilience.
For more like this...
