Electric arc furnace (EAF) steelmaking relies structurally on electricity, with power prices, carbon intensity, flexibility and supply reliability affecting the competitiveness of EAF mills. This dependence is linked to commercial opportunities for renewable electricity producers and suppliers that can supply electricity to industrial users.
European Commission guidance and current CBAM electricity treatment
The European Commission published definitive-period sector guidance on 14 August 2026 covering electricity, iron and steel, and aluminium. It later refreshed its general CBAM questions and answers on 15 October 2026. The guidance and Q&A 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 accounts for direct emissions. Renewable electricity procurement can therefore provide operational, customer, financing and decarbonisation benefits without automatically reducing current certificate liability through purchased-electricity emissions.
Long-term PPAs and shaped electricity products for EAF mills
A long-term renewable power purchase agreement (PPA) can reduce exposure to wholesale electricity price fluctuations. It can also establish a more predictable cost base for electricity-intensive melting in EAF operations.
Hourly or shaped electricity products can support procurement strategies for customers seeking lower-carbon steel. This can occur even while the current CBAM calculation for listed goods remains centred on direct emissions rather than purchased-electricity emissions.
Role of IPPs, traders, GoOs and separate evidence records
Independent power producers (IPPs), traders and renewable generators can strengthen their commercial proposition using granular generation data, relevant Guarantees of Origin (GoOs) and stable long-term pricing. Steel producers can incorporate these inputs into production planning and customer-facing evidence while retaining responsibility for substantiating their claims.
The same arrangements can support renewable project investment. Wind, solar and hydropower developers can contract with EAF mills as anchor offtakers, while traders provide balancing and shaping services to align electricity supply with industrial demand.
Parties are expected to maintain separate records for CBAM electricity evidence, GoOs and steel-product emissions data. This applies even when these elements contribute to the same commercial proposition.
Lender due diligence on profile risk and product boundary definitions
For lenders, key questions include whether the industrial offtaker can absorb electricity profile risk. Lenders also assess 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 approach is intended to prevent a plant-wide energy claim from being distributed across more tonnes of steel than underlying evidence can substantiate. Steel buyers should pay for renewable electricity against a defined energy, customer or decarbonisation benefit rather than a generic CBAM saving unsupported by current product methodology.
COM(2025) 989 reforms affecting future electricity treatment
The legislative proposal COM(2025) 989 would materially change electricity treatment. It includes updates to the methodology for electricity default values and conditions for using actual values.
The proposal would also broaden physical PPAs to include intermediaries. It would revise elements of the congestion and nomination framework used in electricity market processes.
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 is not enacted law.
The same 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, current scope remains the operating baseline.
EAF decarbonisation efforts can stimulate demand for renewable electricity before CBAM legislation gives purchased electricity a broader role in calculating certificate liability for steel products.