Offshore wind and green steel – a virtuous circle?

The UK is going to need millions of tonnes of steel to meet its wind power ambitions.

The steel should be as low carbon as possible and the domestic steel industry could help meet these needs. But years of high electricity prices, foreign competition and now the pressure to decarbonise mean it is focused on surviving – not thriving. UK steelmakers and wind power firms are exploring partnerships, but more could be done to foster collaboration. An ambitious industrial policy could kickstart green steel production capacity and downstream manufacturing in the wind power sector.

Private sector firms from both steel and wind power industries clearly see the potential. Tata Steel UK and RWE Renewables formed a partnership last year to explore what kind of UK-made steel components could be used in foundations and structures for Celtic Sea floating wind projects.

“We’re looking at how strip based steel – the hot, rolled coil that we produce in Port Talbot – can be used in fixed and floating offshore wind,” says Kamal Rajput, strategic business development lead at Tata Steel UK.

The offshore wind sector typically relies on plate steel. Although the UK steel industry does have plate manufacturing capability, for historical reasons it is not set up to supply the large volumes required for the offshore wind sector.

Everyone wants to go second. They want someone else to take it on first.

Kamal Rajput, TATA Steel

Tata Steel UK is investigating whether it would be possible to produce strip steel that could be used in a panelised approach to offshore wind construction. Research, development and innovation are crucial to identifying how UK steel producers could provide more of the components for wind projects. But this takes time, effort and even then the adoption of new techniques is not straightforward.

“One issue with R&D solutions in general is that everyone wants to go second,” says Rajput. “They want someone else to take it on first.”

There is room for lower grades of steel in UK wind projects too. Zero Waste Scotland (ZWS) has highlighted the business case for creating electric arc furnace capacity in Scotland to process scrap steel – all of which is currently exported. This scrap could be made into rebar for the wind turbine foundations.

The key point is that although the UK produces few of the products that wind projects require, it does not have to be this way.

Frank Aaskov, energy and climate change policy manager at trade group UK Steel, says UK producers are already in a position to make some of the necessary steel types, and could provide others if there was demand. 

“The UK can make any grade depending on what the client requires – it’s just about whether there is a clear signal and commitment so that producers can make the investment,” he says.

There will be cases where it is relatively straightforward for UK steel producers to make steel for wind projects. But in general, producing a new steel type or component at commercial scale requires significant capex.

To make that investment a steel producer would need confidence in market demand and sufficient capital. The UK steel industry is not, however, flush with capital. Investments are focused largely on decarbonisation, not product development. This only serves to highlight the importance of creating reliable sources of demand.

Sun, wind and steel

The good news is that the UK’s energy transition creates a significant need for steel. The government wants to reach 70GW of solar by 2035, and has created a Solar Taskforce with representatives from government, industry and regulators.

Rajput, who has represented Tata Steel UK on the task force, estimates that if the country relied purely on ground-mounted solar to meet its target this would require between 1.5 million and 2 million tonnes of steel.

Notably, there is no such task force dedicated to helping the government reach its target of 50GW of offshore wind by 2030. The UK has around 11.3GW of offshore wind capacity installed. ArcelorMittal estimates each new MW of wind power requires 120 to 180 tonnes of steel. Applying the midpoint of that estimate to the UK’s needs equates to another 6 million tonnes of steel.

Strengthening local content

The bad news is that the incentives for UK wind projects to use UK steel are weak. The country lacks a domestic wind turbine manufacturing industry. Local content requirements for offshore wind have proved problematic.

In March 2022, the EU challenged the UK at the World Trade Organization over the UK’s use of local content requirements in the CfD scheme. The EU claimed the requirements prioritised domestic UK producers in a way that violated General Agreement on Tariffs and Trade (GATT) rules. The UK agreed to remove them.

There seems to be a real opportunity to develop low carbon UK steel and concrete industries

DAI report

There is still scope to use non-price factors in CfD allocation to strengthen local content requirements, something the UK’s Department for Energy Security and Net Zero has been consulting on since last year. The latest proposal for a Sustainable Industry Reward (SIR) would subsidise lower carbon intensity supply chains and sustainable procurement, as explored recently in E-FWD.

Under the SIR, applicants would need to meet a minimum threshold in the form of a maximum cap on their project’s Lifetime CO2 Equivalent Emissions (LCO2e). In a report on local content for offshore wind published in July, international development company DAI highlighted the potential for an LCO2e score and a growing volume of excess wind power to drive decarbonisation in heavy industry.

“[A]ccompanied by energy market reforms that may lead to low-cost night-time or windy day green power – there seems to be a real opportunity to develop low carbon UK steel and concrete industries,” the report said. “These industries could then manufacture low carbon wind turbine towers, blades and substructures, which would enable a developer to earn a higher LCO2e.”

Prohibitive power prices

Even if smart policy and inter-industry collaboration do ramp up demand, the steel industry has a more fundamental problem. UK producers face some of the highest electricity prices in the world, according to UK Steel. In 2023, UK steel makers faced average prices that were 86% higher than their competitors in Germany and France, according to data from the trade group. Most of the difference, says UK Steel, is in the form of network charges and policy costs.

Decarbonisation will only exacerbate the discrepancy. From electric arc furnaces to carbon capture and hydrogen, solutions to decarbonise steel are all extremely electricity intensive. UK Steel says that electric arc furnaces require three times more grid electricity to produce the same volume of steel as a blast furnace.

Recycling and more efficient use of scrap steel is a key part of the low-carbon journey. But though the UK produces a large volume of scrap, most of it is exported to countries with cheaper electricity prices. “Tons of scrap steel is exported each year with most going to developing countries for sorting and ultimately recycling back into new steel products that may then be shipped back, with additional carbon footprint, to the UK,” says Aaskov.

The government has taken steps to address the issue. In February, it announced a British Industry Supercharger – a set of measures to make strategic energy intensive industries more competitive and tackle indirect carbon leakage. The proposed measures include full capacity market exemption, greater aid intensity for the renewable levy and compensation for electricity grid charges. Gareth Stace, Director General of UK Steel, said the measures were “a great step towards levelling the playing field for the steel industry.”

The price of offshore wind is rising, which means that potential savings for steel makers may not be as substantial as in the past

The steel industry’s policy wishlist does not end there. Steel is one of the most highly traded products in the world and there is little hope of a global carbon price that would reflect the cost of emissions. UK Steel warns that without policy intervention, investment and production will move abroad.

The trade group has outlined two possible solutions. One is creating a Net Zero steel market using an approach analogous to banning new internal combustion vehicles. Policy tools that would help create that market include carbon border adjustment mechanisms, product standards, and green public procurement. The alternative is direct support for Net Zero steel production. UK Steel compares this to the power sector approach, where renewable energy generators receive a guaranteed price through a consumer levy. This would need co-investment in assets and infrastructure, and R&D funding.

Government as underwriter

There are other innovative suggestions for how the government could help catalyse collaboration between the wind and steel sector. The Green Alliance has proposed a Green Power Pool structure as a way to further lower the wholesale price of electricity for steel makers. 

There are cases where manufacturers in other sectors benefit from a direct wire arrangement – signing a PPA with a specific renewable power producer. “But competition from companies that want renewable PPAs mean such arrangements are not actually always that competitively priced,” says Roz Bulleid, research director at Green Alliance. “A steel company that is already facing financial problems might also struggle to agree to a long term PPA,” she adds.

A Green Power Pool would bundle PPAs between steel producers and renewable generators with the government acting as an underwriter and negotiator. The price of offshore wind is rising, which means that potential savings for steel makers may not be as substantial as in the past. 

There are many different pathways to a virtuous green steel-wind power circle.

Bulleid says there might be scope for the wind producers to offer preferential rates in return for access to low-carbon steel. “But at present, UK steel makers can’t promise green steel to renewables companies,” she says. “That will need major investment, and all of this only makes sense if we develop the downstream wind manufacturing capacity in the UK.”

There might seem to be a chicken-egg aspect to the problem. But Kenny Taylor at ZWS suggests that a solid UK energy strategy, the country’s ambitious wind capacity targets and more investment in scrap recycling and low-carbon steel production could attract foreign manufacturers to set up operations.

Local content incentives and more pressure on the wind industry to focus on supply chains, materials and embodied carbon could also support the business case for UK based manufacturing.

All this serves to highlight the elements critical to realising wind-steel synergy: investment, government support and coordination. There are many different pathways to a virtuous green steel-wind power circle. But stakeholder engagement is key for all of them. There is a UK-wide taskforce for solar. A good starting point would be to set one up for offshore wind.