Little by little the government is promoting big industry, but it still needs a bigger push to keep them in Spain in a competitive way and to contribute to the economic recovery, that is why it is necessary to increase the funds within the framework of the Electrointensive Statute.

The electro-intensive

The electrointensive industry is that whose main production factor is electricity (the ratio between consumption and gross added value of the installation is over 1.5 kWh/ €), being one of the main raw materials for the process. However, this is not the only requirement, but it must also have high consumption at times of low electricity demand and a stable and predictable consumption curve. They are usually companies in the metallurgical, chemical, steel and industrial gas sectors.

The new draft considers granting the status of electro-intensive to those installations with consumption during at least two of the previous three years of an annual volume greater than 1 GWh with at least 50% of the total energy consumed in the off-peak period.

Until a common European statute for the electro-intensive industry is developed, it will depend mainly on the costs of the electricity markets in the various countries and on specific aid for this sector.

This type of industry competes in costs on the international markets and therefore the price of energy in each country is an advantage or a disadvantage as these products are not differentiated.

But what is the difference between the energy costs of our biggest EU competitors?

According to EU data for non-domestic consumers with an annual consumption of between 70 and 150 GWh, which is what we used for the calculation. We have used this data for tabulation purposes since, for the next band, which would be >150 GWh, for countries like Germany there was only data for the first half of 2020 and it was therefore difficult to compare.

The following graph shows the evolution of electricity prices (without VAT) in different European Union countries, as well as the average for the European Union and the Euro zone.

Source: own elaboration, data from Eurostat (online data code: nrg_pc_205)

We can see how in total terms, the price of electricity without taxes is higher in Spain than in other countries such as Germany and France, but it is much lower than in France. If we take into account non-recoverable taxes, this situation varies, Spain’s cost would be much lower than Germany’s or the European Union’s average, but above countries like France.

If, on the other hand, we consider the total price for non-domestic consumers, including non-recoverable taxes, the evolution would be as follows:

Source: own elaboration, data from Eurostat (online data code: nrg_pc_205)

Spain in this case would be at an average level well below Germany, although above France, but then why are other countries around us more competitive?

What happens in the countries around us?

The claims of the electro-intensive come mainly from measures such as:

  • CO2 cost compensation, which, in countries such as Germany and France, are considered the maximum compensation allowed by the EU.
  • Mechanisms to reduce charges for financing renewable energy. In France, there are exemptions which, depending on the case, can be as much as total depending on the degree of electro-intensive and on the membership of carbon leakage sectors. In Germany, they have exemptions that depend on the degree of electro-intensive, but which in any case limit the payment of the charge. Italy has a mechanism for reducing support for renewables with a very significant impact.
  • The mechanisms for reducing charges for financing cogeneration, which in both Germany and France are limited to electro-intensive consumers.
  • The guarantee coverage mechanisms for the conclusion of long-term bilateral power purchase and supply contracts (PPAs) used by Norway.
  • But also other tariffs such as the ARENH tariff in France which gives the possibility to cover a rather high percentage of the energy with a tariff that during the last years has been at 42 €/MWh.

The Spanish Association of Mass Market Companies (AEGE) updates weekly a comparison of final electricity prices for the electro-intensive industry in different countries.   The comparison between Spain, France and Germany would be as follows:

Source: AEGE

And in this way prices in Spain finally move away from some countries and thus become less competitive.

What is the electro-intensive industry asking for in order to be more competitive? And where are the negotiations with the government?

  • Compensation of regulated costs

The electro-intensive industry in Spain is waiting for the application of the new tolls. Furthermore, it does not benefit from the compensation of the electricity transport tolls nor from the financing charges for renewables, which exist for Germany and France and have already been claimed by the Spanish Association of Mass Market Companies (AEGE).

If it is true that the draft Royal Decree regulating the status of electro-intensive consumers will approve a reduction or exemption of the financing of capacity payments, to which was added at the end of October 91 million euros intended to compensate for reductions in the financing of support for electricity from renewable sources, high-efficiency cogeneration and off-grid from non-mainland territories, in electricity prices.

  • Indirect CO2 offsets

The draft royal decree also states that “Subject to budgetary availability, aid will be called for to offset the indirect costs attributable to greenhouse gas emissions passed on in electricity prices, in accordance with the legally established procedure”. But this support mechanism is rather indeterminate and uncertain, since it is at the mercy of budgetary availability.

Thus, on 10 November the Council of Ministers gave the green light to increase to 61 million euros (6 million more than those presented in April) the subsidies for offsetting indirect CO2 emissions for the 2020 call for the granting of subsidies relating to the mechanism for offsetting costs of indirect greenhouse gas emissions for costs incurred in 2019. Although this budget is well below the European Union’s allowed 25% of the revenues from the auctioning of emission allowances, which some EU countries are receiving.

  • Interruptibility

Last December, the interruptibility auctions placed the service remuneration for the first half of 2020 at a 95% reduction with respect to 2019. The interruptibility auctions were the main mechanism used by the Spanish electro-intensive industry to reduce the differential with our European competitors. These auctions were not held for the second half of the year and therefore disappeared on 1 July.

AEGE is calling for the strengthening of interruptibility services, as is already being done in neighbouring countries such as Italy and Portugal, where they are still being paid for this service.

Well, all these factors mean that the price of energy for the electro-intensive industry is not competitive in relation to neighbouring countries and that it requires a government commitment to solve the problems of competitiveness that have arisen.

  • PPA’s for the electro-intensive

The Government is considering in the draft the possibility of covering the guarantees required of electro-intensive consumers when they enter into this type of contract.

Last June, the Council of Ministers gave the green light to a state fund of 200 million euros per year, to cover a maximum of 600 million investment vouchers over three years, to back the PPA’s of the electro-intensive industry through the Spanish Reserve Fund for Guarantees of Electro-intensive Entities (Fergei).

The question that now arises is whether these aids and the legislative changes will be sufficient to guarantee the competitiveness of the electro-intensive industry in the different sectors and whether they will arrive in time.

Marta Serrano | Energy Consultant

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