Supported by CBAM.Clarion.Engineer
Electric arc furnace (EAF) steelmaking has a structural dependence on electricity that extends well beyond current CBAM requirements. Power prices, carbon intensity, flexibility and supply reliability can all influence the competitiveness of EAF mills, creating commercial opportunities for renewable electricity producers and suppliers.
Renewable PPAs support industrial competitiveness
The European Commission published definitive-period sector guidance on 14 August 2026, covering electricity, iron and steel, and aluminium, before refreshing its general CBAM questions and answers on 15 October 2026. These materials clarify implementation but do not replace the binding regulation and implementing acts.
For iron-and-steel and aluminium goods currently listed in Annex II, the existing CBAM calculation takes account of direct emissions. Renewable electricity procurement can therefore deliver substantial operational, customer, financing and decarbonisation benefits without automatically reducing the current certificate liability through purchased-electricity emissions.
A long-term renewable power purchase agreement (PPA) can reduce exposure to wholesale electricity price fluctuations and establish a more predictable cost base for electricity-intensive melting. Hourly or shaped electricity products can also support procurement strategies for customers seeking lower-carbon steel, even while the current CBAM calculation for listed goods remains centred on direct emissions.
Traders and renewable generators can strengthen the offer
Independent power producers (IPPs), traders and renewable generators can improve their commercial proposition through granular generation data, relevant Guarantees of Origin (GoOs) and stable long-term pricing. Steel producers can then incorporate these inputs into their own production planning and customer-facing evidence, while retaining responsibility for substantiating their claims.
This creates opportunities for renewable project investment. Wind, solar and hydropower developers can contract with EAF mills as anchor offtakers, while traders provide balancing and shaping services to better align electricity supply with industrial demand.
The parties should maintain separate records for CBAM electricity evidence, GoOs and steel-product emissions data, even when these elements contribute to the same commercial proposition.
Lenders must assess profile risk and evidence quality
For lenders, the key questions are whether the industrial offtaker can absorb electricity profile risk and whether the renewable project can deliver the agreed shaped product without incurring open-ended replacement exposure. The offtaker’s credit quality can be as important to the financing structure as the environmental premium attached to the electricity.
Where customers request low-carbon steel, producers should define the product boundary and emissions-allocation methodology before assigning a renewable-power benefit to particular products. This helps prevent a plant-wide energy claim from being distributed across more tonnes of steel than the underlying evidence can substantiate.
Steel buyers should therefore pay for renewable electricity against a defined energy, customer or decarbonisation benefit, rather than a generic CBAM saving that the current product methodology does not support.
Proposed CBAM reforms could alter future electricity treatment
The legislative proposal COM(2025) 989 would materially change electricity treatment, including the methodology for electricity default values and certain conditions for using actual values. It would also broaden the concept of physical PPAs to include intermediaries and revise elements of the congestion and nomination framework.
The Council adopted its negotiating position on 12 June 2026, followed by the European Parliament on 15 September 2026. The proposal remains under interinstitutional negotiation and should not be treated as enacted law.
The same legislative file proposes extending CBAM downstream coverage from 2028 to selected steel- and aluminium-intensive goods. Both institutions support expansion, but their proposed product lists differ and remain subject to negotiation. Until final legislation is adopted, the current scope remains the operating baseline.
EAF decarbonisation can stimulate demand for renewable electricity well before CBAM legislation gives purchased electricity a broader role in calculating certificate liability for steel products.
