The deal needed to keep steelmaking in Port Talbot

Rising energy costs and uncertainty over government financial aid have put the future of Tata鈥檚 steelworks in doubt

General view of Tata steel works in Port Talbot, South Wales. The giant plant can be viewed from the M4 motorway with runs through the town. — Tata's steelworks in Port Talbot. The giant plant can be viewed from the M4 motorway. (Image: Jonathan Myers)

The future of Port Talbot steelworks hangs in the balance as discussions over the amount of government support available for the steel giant to decarbonise its operations draw closer.

One of Port Talbot鈥檚 biggest current challenges is the cost of decarbonisation, yet rising energy prices and uncertainty over 海角视频 Government financial aid have put the future of Tata鈥檚海角视频 plant into doubt.

Last July, Tata Group chairman Natarajan Chandrasekaran said action to close its 海角视频 operations would be taken in 12 months if a financial support package from Westminster was not forthcoming.

With Tata鈥檚 Port Talbot steelworks employing half of the group鈥檚 8,000 海角视频 workers, the closure would be devastating for communities in south Wales.

However, Tata Steel and the 海角视频 Government have remained tight-lipped on the ins and outs of on-going negotiations regarding what financial aid for Port Talbot can be agreed.

What we know so far

It has been reported that Tata would need around 拢3bn in capital expenditure to decarbonise its Port Talbot operations. The steelmaker has called on the 海角视频 Government to provide 拢1.5bn to help it achieve this goal.

Latest reports suggest that the current offer from Westminster stands at 拢300m to subsidise, upgrade, and decarbonise those operations - a fraction of what the firm is asking for.

Speaking in front of the Senedd鈥檚 Climate Change, Environment and Infrastructure Committee in April, director of decarbonisation Huw Morgan said Tata wants the same level of government support that is already being delivered to steelmakers in Europe. German steelmaker Salzgitter has secured 鈧�1bn (拢866m) from the German Government to support its decarbonisation efforts.

Aside from capital expenditure, Tata is also looking for a level playing field on energy costs and policy decisions such as a carbon border tax on imports of steel (similar to what was agreed by the EU last year). 鈥淭hat's really where we start and that's the basis on which those discussions take place,鈥� Mr Morgan told committee members.

It is understood Britain鈥檚 high energy costs have been a sticking point in negotiations. Earlier this month, Tata Steel warned that the finances of its 海角视频 business face 鈥渕aterial uncertainty鈥� given market conditions and the level of government support.

Director general of 海角视频 Steel Gareth Stace said government choices will determine the future of the industry.

He said: "The future of 海角视频 steel production is critically important to the country. The steel sector faces many challenges in the years ahead, from complete decarbonisation in little more than a decade to handling rising energy costs."

"We face a choice in the next decade to either build the 海角视频's industrial capacity or let it wither on the vine. Either way, we need steel. The 海角视频 needs only to look across the English Channel to France and Germany, where those governments have forked out at least 鈧�1.7 billion and 鈧�1 billion on capital funding for net zero investment to steel companies. Capital expenditure support must be matched with equal heavy lifting from the Government to cement Britain as a highly competitive place to do business.

"Government choices will determine the future of industry and communities from the north of England to the south of Wales. A long-term vision and visionary capital expenditure plan will secure jobs, supply security and decarbonise the 海角视频's steel industry for good.鈥�

How would Port Talbot decarbonise?

As part of a 拢3bn green investment strategy, Tata is said to be looking at a number of routes to decarbonise. One option would be to move the Port Talbot plant from fossil-fuel powered blast furnaces to less carbon-intensive electric arc furnaces.

This would effectively see an end to primary steel making from raw materials with steel being made from recycling steel instead. This would significantly reduce emissions although the electricity demand would be enormous.

If Tata did switch to arc furnaces in its Port Talbot steelworks, downstream operations like Trostre in Llanelli shouldn鈥檛 be impacted by the quality of steel. However, an arc furnace operation would need significantly less workers than currently.

The other option, which would also require significant investment, is to maintain the two blast furnaces at Port Talbot, but employ carbon capture and storage technology - using the carbon to provide power.

While technology is advancing in carbon capture and storage, electric arc furnaces have a proven track record. However, Tata said it is already investing millions of pounds in decarbonising its current assets. This includes replacing stoves in its two blast furnaces, at a cost of 拢2m, which will reduce the amount of coal that it burns.

The company is also looking at generating more electricity in its power plant, as well as using land it owns for renewable energy such as solar and wind farms.

It said it has also started increasing the amount of scrap steel used in its steel production. The steelmaker currently uses 17% scrap steel but said that every 1% increase in scrap used reduces 100,000 tonnes of CO2 produced.

Utilising scrap steel in this way shouldn鈥檛 be an issue either, as the wider steel industry in the 海角视频 is at a stage now where it has started exporting a portion of scrap steel and we already have this kind of operation with recycled steelmakers.

Celsa Steel in Cardiff is one of the leading users of electric arc furnaces in the 海角视频 and supplies the construction market with 1.2m tonnes of recycled scrap steel each year.

Is it crunch time for Tata?

Now it could soon be crunch time for Tata Steel as the group鈥檚 chair meets Prime Minister Rishi Sunak this week for talks expected to lead to a deal for the Indian company to build its electric car battery plant in Somerset.

The FT reports that discussions are likely to focus on the size of state support the 海角视频 Government will offer as part of the deal. This support package could be worth hundreds of millions of pounds and include taxpayers subsidising the gigafactory鈥檚 energy costs - a critical factor driving Tata鈥檚 decision to build the plant in the 海角视频.

As a result, there have been suggestions that any support offered by the 海角视频 Government for the new gigafactory in Somerset could be packaged up with the 拢300m offered to help decarbonise Port Talbot.

It is not yet known if this will be the case or whether the two parties will decouple the Port Talbot operations from the negotiations surrounding the Somerset gigafactory.

That鈥檚 something that we will, hopefully, find out this week.