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. The plant is the biggest industrial contributor to carbon emissions in Wales at around 5.8 million tonnes a year.
Yet, one of Port Talbot’s biggest current challenges is the cost of reducing its emissions, with high energy prices and uncertainty over UK Government financial aid putting the future of Tata’s UK plant into doubt. Last July, Tata Group chairman Natarajan Chandrasekaran said action to close its UK operations would be taken in 12 months if a financial support package from Westminster was not forthcoming.
With Tata’s Port Talbot steelworks employing half of the group’s 8,000 UK workers, the closure would be devastating for communities in south Wales. However, Tata Steel and the UK Government have remained tight-lipped on the ins and outs of ongoing negotiations regarding what financial aid for Port Talbot can be agreed.
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What we know so far
It has been reported that Tata would need around £3bn in capital expenditure to decarbonise its Port Talbot operations. The steelmaker has called on the UK Government to provide £1.5bn to help it achieve this goal. Latest reports suggest that the current offer from Westminster stands at £300m to subsidise, upgrade, and decarbonise those operations - a fraction of what the firm is asking for.
Speaking in front of the Senedd’s 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 €1bn (£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). “That's really where we start and that's the basis on which those discussions take place,” Mr Morgan told committee members.
It is understood Britain’s high energy costs have been a sticking point in negotiations. Earlier this month, Tata Steel warned that the finances of its UK business face “material uncertainty” given market conditions and the level of government support. Director general of UK Steel Gareth Stace said government choices will determine the future of the industry.
He said: "The future of UK 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 UK's industrial capacity or let it wither on the vine. Either way, we need steel. The UK needs only to look across the English Channel to France and Germany, where those governments have forked out at least €1.7 billion and €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 UK's steel industry for good.”
How would Port Talbot reduce its emissions?
As part of a £3bn green investment strategy, Tata is said to be looking at a number of routes to reducing its carbon emissions. 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 which could come from renewable sources.
If Port Talbot does move to a recycled steel arc furnace operation the quality of steel produced should be the required standard for its downstream businesses to make finished products, including cans for the food industry at Trostre in Llanelli. However, an arc furnace operation would need significantly fewer jobs.
The two blast furnaces at Port Talbot have had investment to extend their production lives. Blast furnace 4 in 2012 had its life extended by 20 years to 2032. Blast furnace 5 will expire in 2026, following investment in 2018.
From a planning perspective, Tata would need to move quickly if it is to start a phased or complete arc furnace transformation, with arc furnace capacity ready to take over from blast furnace 4 in 2026.
However, Tata could just operate blast furnace 4 from 2026. Both furnaces have capacity to provide 5 million tonnes of steel, but are currently operating at around 3.6 million equally split. Blast furnace 4 has the capacity to produce 2.6 million tonnes.
The other option, which would also require significant investment, is to maintain the two blast furnaces at Port Talbot, which use coking coal and iron ore to make steel, but employ carbon capture and storage technology - and use the carbon dioxide 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 £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’t be an issue either, as the wider steel industry in the UK 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 UK 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’s 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 UK 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’s energy costs - a critical factor driving Tata’s decision to build the plant in the UK.
As a result, there have been suggestions that any support offered by the UK Government for the new gigafactory in Somerset could be packaged up with the £300m offered to help decarbonise Port Talbot.
It is not yet known if this will be the case or whether the two parties will separate the Port Talbot operations from the negotiations surrounding the Somerset gigafactory. That’s something that we will, hopefully, find out this week.
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