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Petrochemicals31-Jul-2024
NEW YORK (ICIS)–The US chemical industry,
along with other interest-rate sensitive
sectors, is poised to get a lift as the US
Federal Reserve moves closer towards its first
interest rate cut – a move increasingly likely
in September.
“The economy is moving closer to the point at
which it will be appropriate to reduce our
policy rate,” said Fed chair Jerome Powell at
the FOMC press conference.
“The question will be whether the totality of
the data, the evolving outlook and the balance
of risks are consistent with rising confidence
on inflation and maintaining a solid labor
market. If that test is met, a reduction in our
policy rate could be on the table as soon as
the next meeting in September,” he added.
The economy is seeing broader disinflation
today, including now in both housing and
non-housing services, compared to last year
when it was centered on goods.
FOCUS SHIFTS TO LABOR
MARKETAfter being laser-focused
on bringing inflation down to its target of 2%
for the past couple of years, the Fed is now
more confident on progress towards this goal
and is thus focusing more evenly on its dual
mandate of maximum employment as well as price
stability.
“When we were far away from our inflation
mandate, we had to focus on that. Now we’re
back to closer to an even focus,” said Powell.
“You’re back to [labor] conditions that are
close to 2019 conditions, and that was not an
inflationary economy… We don’t think of the
labor market in its current state as a likely
source of significant inflationary pressures,”
he added.
Powell said he does not want to see further
material cooling in the labor market.
Unemployment has ticked up to 4.1% today versus
a low of 3.4% in April 2023. Other measures
have also indicated softening, including the
Employment Cost Index (ECI) and the Job
Openings and Labor Turnover Survey (JOLTS)
report.
In the latest JOLTS report, the ratio of job
openings to number of unemployed remained at
1.2x, basically back to pre-pandemic levels.
The number of hires also ticked down.
CHEMICAL INDUSTRY AWAITS RATE
CUTSA rate cut in September,
along with guidance of further cuts to come,
would be welcome news for the chemical sector
as the long-anticipated H2 2024 recovery is
pretty much dead, according to
comments on Q2 earnings calls.
Dow chief financial officer Jeff Tate
told ICIS he expects weakness in building
and construction (B&C) and consumer
durables demand to persist through 2024, and
that substantial rate cuts are needed to kick
start demand.
“In terms of the timing [of a meaningful
recovery] going into 2025, from our vantage
point, we think it’s going to take some
substantive interest rate movement,” said Tate.
“If mortgage rates are in that 7%-plus range,
we probably need to start to see that trending
towards a 5%-type of handle to really get that
sizeable movement – to really release some of
that residential housing momentum that is
impacting consumer durables,” he added.
Several chemical companies cited ongoing
weakness in residential building and
construction on their Q2 earnings calls.
High interest rates have hurt affordability for
housing, not only dampening sales of new homes,
but existing homes as those with low-rate
mortgages from purchasing or refinancing during
the pandemic are disincentivized to move –
locked in their so-called “golden handcuffs”.
The stock market, including chemical stocks,
rallied hard into the Fed press conference and
maintained their gains through the close. In
the past couple of weeks, chemical and other
economically sensitive stocks have caught a bid
in anticipation of the Fed preparing to ease.
LONG AND VARIABLE
LAGSJust as there are “long and
variable lags” to when the economy responds to
rate hikes, as we are seeing with the easing of
inflation and the labor market today after the
Fed finally stopped hiking rates after July
2023, it works the same for rate cuts.
It will take time for the economy to respond
favorably to rate cuts as well and thus the
risk of recession is not off the table.
However, the Fed is confident it is in a good
position to deal with unexpected weakness.
“We’re certainly very well positioned to
respond to weakness with the policy rate at
5.3%. We certainly have a lot of room to
respond if we were to see weakness,” said
Powell.
Insight article by Joseph
Chang
Ethylene31-Jul-2024
HOUSTON (ICIS)–The Federal Reserve flagged on
Wednesday the threat of rising unemployment,
opening the prospect of the first rate cut
since it started its campaign to get inflation
back to its 2% target.
“The economic outlook is uncertain, and the
committee is attentive to the risks to both
sides of its dual mandate,” the Federal Reserve
said.
The Federal Reserve is charged with keeping
inflation under control and promoting maximum
employment.
If the Fed is concerned about unemployment
rising too quickly, it could loosen monetary
policy by lowering the benchmark federal funds
rate.
It voted on to keep the rate steady at
5.25-5.50%. However, its comments opened the
prospects of a cut during its next meeting
scheduled for September 18.
In its latest statement, the Fed noted that the
labor market has softened.
Job gains have moderated, and the unemployment
rate has moved up, although it remains low, the
Fed said.
Also, the fed said that inflation remains
“somewhat elevated”.
During its last rate-setting meeting in June,
the Fed said that job gains have remained
strong, and the unemployment rate remained low.
Moreover, it said that inflation remained
elevated without qualifying it.
Polypropylene31-Jul-2024
MADRID (ICIS)–Latin American petrochemicals
prices remain in the doldrums due to global
oversupply, but domestic producers are hoping a
sustained increase in freight costs and
protectionist measures could start improving
their dented market share.
Petrochemicals in the world’s quintessential
‘price taker’ region – Latin America remains a
net importer and therefore is at the mercy of
global price swings – have had some of the
toughest years in memory: high levels of
lower-priced imports have heavily reduced
operating rates in the region.
In Brazil, producers’ operating rates stood in
May at a record low of 58%, according to the
country’s chemicals trade group Abiquim. The
story repeats itself in most Latin American
countries, perhaps with the only exception of
Mexico.
There, the government increased import tariffs
in several chemical products and the country’s
North American status makes its petrochemicals
industry less prone to the woes its southern
neighbors have to deal with.
Still, Braskem Idesa, the largest polyethylene
(PE) producer in Mexico, has not been able to
avoid the competition from imports from Asia
and the US in a much-oversupplied polymers
market, with its
sales and profit also hit by the situation.
Most economists believe Argentina’s GDP is
going to fall around 4-5% this year, with a
stronger rebound in 2025. However, most
petrochemicals suffered heavy falls in demand
this year of around 40%, according to some
sources.
In Latin America as a whole, players in the
PE and polypropylene (PP)
markets, two of the most widely used polymers,
expect little improvements in demand in coming
months, under a global oversupply which is
expected to remain or even widen as yet more
capacities come on stream.
BRAZIL: THIRST FOR
GASPetrochemicals producers in
Latin America’s largest economy, Brazil, have
been losing market share for the past two years
as China’s dumping of its oversupplied
chemicals to the rest of the world continues
apace.
The chemicals trade group in the country
Abiquim, in which polymers major Braskem has a
commanding voice, grasped its opportunity when
President Luiz Inacio Lula da Silva took office
in January 2023.
Abiquim started then a lobbying campaign for
higher import tariffs – the previous
liberal-minded administration of Jair Bolsonaro
had lowered them – to protect domestic
producers’ market share, but also calls about
high natural gas prices which, producers say,
is making the industry uncompetitive in the
global stage.
Lula’s cabinet, whose declared aim is to create
more and better industrial jobs, has listened
to Abiquim and in 2023 raised tariffs twice,
and another increase is widely expected by
September after a public consultation in which
the industry – Abiquim as well as individual
companies – requested increasing
tariffs in more than 100 chemicals.
On the other hand, a coalition of a variety of
trade groups who import most of the chemicals
they use in their manufacturing processes –
plastics converters, for example – have
been lobbying on the opposite direction:
for tariffs to stay unchanged or, in their best
scenario, even lowered.
In natural gas, Brazil’s prices are admittedly
much higher than the US’, the other large
Americas’ chemicals market. According to
Abiquim, they are five times higher, although
that multiple varies according to the obvious
gas price swings.
In June, Lula and several ministers went to
gas-rich Bolivia to sign deals to increase
imports of natural gas as
well as fertilizers, taking with them
several executives from manufacturing trade
groups; Abiquim’s head, Andre Passos, was part
of the entourage.
Only time will tell if, as Abiquim put it, the
deals for natural gas end up representing a
“historic step” for
chemicals in Brazil, who supposedly could
sharply lower their gas costs if more supply
from Bolivia – and potentially from Argentina –
went to Brazil.
Despite this progress, Brazil’s industrial
sectors continue to import chemicals because
they are simply not produced in the country,
which imports nearly half of all the chemicals
it uses in its factories: the country lacks
special chemicals production which, in times of
crisis, could help it weather global downturns.
As a consequence, the three main chemicals
producers, mostly producing basic chemicals or
polymers, have been hit hard by the global
downturn.
Braskem and Unipar’s financial
results continued suffering in the first
quarter of 2024, while Unigel remains involved
in a battle for its
survival after its natural gas-based
fertilizers division, combined with the
downturn in the chemicals division as well as a
high debt burden put its finances against the
wall.
Unipar and Braskem are set to publish
second-quarter financial results in coming
weeks. Unigel has not released financials since
Q1 2023, an option allowed by Brazil’s
financial regulations for companies in
financial distress.
The severe floods that affected Brazil’s
southernmost state of Rio Grande do Sul in May
are likely to hit the country GDP growth in
2024, although bodies such as the IMF expect a strong
rebound in 2025 as reconstructions efforts
gather pace.
While mostly out of the media spotlight by now,
the floods were Brazil’s worst ever and its
images will remain etched in Brazilians’
retinas for years. They left 182 dead, with 29
people still unaccounted for. Nearly 2.5
million people were affected at the peak of the
crisis in the 11.5-million-strong state and its
economy came to a standstill during May.
Brazil’s vast geography makes it prone to be
victim of a variety of weather phenomena which
are only set to increase in number and severity
as climate change continues its course. Experts
agree the country needs
to step up its climate change adaptation
measures.
IMF estimates
(in %)
GDP growth 2024
GDP growth 2025
Difference with April forecast
2024
Difference with April forecast
2025
Brazil
2.1
2.4
-0.1
0.3
Mexico
2.2
1.6
-0.2
0.2
Latin America and the
Caribbean
1.9
2.7
-0.1
0.2
SHEINBAUM INCOGNITAIn
October, Mexico’s Claudia Sheinbaum will take
over as president from Andres Manuel Lopez
Obrador, who handpicked her for the role.
Sheinbaum will be sworn in after 60%
of her compatriots backed her, with
her Morena party achieving in parliament a
supermajority of two thirds of seats.
The IMF also downgraded its GDP growth forecast
for Mexico in 2024, as the presidential
transition takes place and until Sheinbaum’s
policies become clearer but upgraded them for
2025. Energy policies,
greenhouse gas (GHG) emissions, and the
burden of the
overindebted crude oil state-owned major
Pemex will be on the spotlight.
Mexican manufacturing is showing signs of a
slowdown due to internal policy but
also because of the US November election, where
the export-intensive economy sends most of the
goods it produces. The downturn in the US
manufacturing sectors remains, with its
Mexican peers taking the collateral damage.
Corporate Mexico was never too fond of Lopez
Obrador’s left-leaning rhetoric, although the
president did not really change much in the
economic fundamentals.
In public, and for now at least, companies
think Sheinbaum will be a better ally for the
private sector, although many still fear what
she may do with the supermajority backing her
in parliament. One-party constitutional reforms
are possible.
In an interview with ICIS,
Sergio Plata, an executive at Braskem Idesa,
said companies are liking the tune of
Sheinbaum’s first steps as president-elect, and
praised her visit to the petrochemicals hub of
Veracruz after winning the election, in which
she showed deep knowledge of the chemicals
industry and its needs, he said.
Despite enjoying better operating rates than
its Brazilian peers and certain protection from
higher import tariffs, Mexican petrochemicals
producers also continue to be hit by the global
downturn in the sector.
Apart from the aforementioned Braskem Idesa,
Mexico’s largest chemicals company Alpek and Orbia posted poor set
of results for the second quarter.
ARGENTINA REVIVAL?Many
economists in Argentina and outside it have
come to think the country has no solution as
its economy became dysfunctional under a
subsidy-dependent, corruption-prone, and closed
to imports system where the large middle
classes are now just a distant memory.
According to official figures, around 60% of
Argentinians live in poverty.
The country’s demise is studied in business
schools as a case of a developed economy which
downgrades to emerging economy status. In
December, however, Javier Milei was sworn in as
president under the promise of turning the
country upside down and make it a liberal
bastion, with a largely deregulated economy.
While his shock therapy has caused havoc, he is
still backed by most Argentinians: the dislike
for the previous failed administration and its
mismanagement remains latent, and Milei had
warned during the campaign the changes would be
painful.
While the economy may rebound strongly in 2025,
petrochemicals are not expected to benefit much
from it, as the recovery is expected to be led
by export-intensive and foreign
reserves-generating sectors such as crude oil,
agriculture, or mining.
The petrochemicals-intensive manufacturing and
construction sectors have
been hit the hardest by the recession.
Inflation has started to slowly fall, but it
remains at an annual rate of 271%.
Petrochemical sources in the country are
already bracing for more hardship
in 2025, with demand expected to fall
again. Indeed, it will take many quarters for
consumers to have the means and the confidence
to buy higher-priced and
petrochemicals-intensive durable goods.
“Everyone is wondering for how long people can
take the shock therapy. If the changes
implemented by Milei bear fruit, Argentina
could be a completely different, and perhaps
better country,” said in July a source at a
distributor in the country.
“But will he achieve what he is proposing? I am
not that certain.”
MADURO DRAGS ONVenezuela
may also end up being studied in business
schools’ textbooks, having gone in just three
decades from powerful oil exporter to
poor nation, plagued by insecurity, with a
third of its population gone abroad since 2015,
and with a president who is a dictator in all
but name.
The country’s demise started in the 1990s and
worsened after the socialist PSUV party took
over in 2001, first under Hugo Chavez and later
under Nicolas Maduro.
On 28 July, the country held an election with
hopes it could be free, unlike the 2018
election which gave the PSUV got more than 95%
of seats in parliament and which ultimately
made Venezuela a pariah country.
Several analysts and even opposition figures in
Venezuela hinted that, if Maduro lost the
election, he could be given the option to leave
for exile in some of the few allies he has –
Cuba and Russia recurrently mentioned –
allowing Venezuela to start afresh.
Opinion polls consistently showed Maduro was on
course for a defeat. Turnout on 28 July was
high, and long queues of Venezuelans at the
polling stations drew a picture of thirst for
change.
However, when the official results came
in, most Venezuelans realized the election
had just been yet another farce. The government
said Maduro had renewed its mandate with 51.2%
of the votes, with the main opposition
candidate at 44%.
Few countries have recognized Venezuela’s
result yet, apart from some of Maduro’s allies,
some of them global pariahs themselves. Even
China, tired of lending Venezuela large sums
which it fears it will never get back, has not
been unfriendly to opposition leaders.
The US, the EU, and traditional allies in Latin
America such as Colombia’s Gustavo Petro,
Brazil’s Lula, or Chile’s Gabriel Boric had
also said a recount should take place again
with full transparency; the very demand coming
from the opposition since the official results
were announced.
The coming days and weeks are crucial. However,
after years of demise, Maduro’s exile, if it
happens, would only represent for most
Venezuelans a small glimmer of a very distant
light at the end of a very dark tunnel.
Front page picture: Brazilian President
Lula (right) meets chemicals industry
representatives in Brasilia in May, including
Abiquim’s director general Andre Passos (right,
behind Lula)
Picture source: Abiquim
Insight by Jonathan Lopez
Global News + ICIS Chemical Business (ICB)
See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.
Power31-Jul-2024
UK government announced a budget boost of
more than £500m for the sixth CfD auction
round, raising the budget to over £1.5bn
This means offshore wind funding has
increased from £800m to £1.1bn, the largest
budget ever
Despite this vast increase, the budget will
not be enough to procure the capacity needed to
meet UK’s 2030 offshore wind target
LONDON (ICIS)–Modelling by ICIS Analytics
indicates that the UK government’s latest £530m
funding increase to its Contracts for
Difference (CfD) scheme is too low to procure
the capacity required to meet its 2030 offshore
wind target.
The UK aims to quadruple offshore wind capacity
by 2030, a target the Labour government first
announced before being elected.
The budget boost was announced on 31 July,
ahead of the sixth auction round of the
Contracts for Difference (CfD) scheme this
summer, and raises the overall budget to over
£1.5bn.
The pot for offshore wind has now increased
from £800m to £1.1bn, the largest ever budget.
But to meet the UK
target, nearly £3.2bn would be needed – if the
auction cleared at a base case scenario strike
price of £60/MWh, ICIS analysis shows.
Furthermore, there are too few auction entrants
to procure the 16.6GW of offshore wind capacity
needed in the first place. This is because only
10.6GW in projects have the required
development consent to proceed to auction.
“Last year’s auction round was a catastrophe,
with zero offshore wind secured,” energy
secretary Ed Miliband said in a statement,
adding that the new budget would support
construction work for the sector.
The
unsuccessful 2023 fifth auction round saw
no offshore wind bids mainly due to a low
strike price in the wake of increasing supply
chain costs.
The previous government had set the maximum
strike price for offshore wind in the sixth
auction at £73/MWh, allocated offshore wind its
own funding pot and set a budget of £800m.
The new government’s aim to quadruple offshore
wind capacity is also an increase on the UK’s
previous target.
OFFSHORE WIND ANALYSIS
To interpret targetted 2030 capacity, ICIS
quadrupled its forecast for installed capacity
by the end of 2024, resulting in 61.08GW by
2030.
Actual intended
capacity may vary, and the government did not
address enquiries that could help specify the
exact date from which it intended to quadruple
capacity.
ICIS Analytics calculated that, in auction
rounds six and seven, offshore wind capacity
needs to average 16.60GW per auction to obtain
the capacity needed to reach the 2030 target.
Calculations show that if the auction cleared
at a strike price of £60/MWh, the £1.1bn budget
could finance 5.8GW of capacity. Similarly, if
the auction cleared at its maximum strike price
of £73/MWh, the budget would only be able to
fund 4.3GW.
Given that only 10.6GW of offshore projects
have development consent to proceed to auction,
this puts
increased pressure to secure further
capacity on the seventh auction in 2025.
For now, ICIS Analytics forecasts only 39GW of
offshore wind capacity will be built by 2030,
under a base case scenario.
BOOST FOR ONSHORE
WIND
The overall budget the CfD scheme is divided
into three pots (see infographic) depending on
the technology it supports. The budget for pot
one, for established technologies like onshore
wind, was increased from £120m to £185m as a
result of the latest £530m injection.
The government has also
removed a de-facto ban on onshore wind in
England this month.
Additional policy tests previously meant that
wind power planning applications had to go
though additional hurdles compared to many
other types of energy development proposals.
The government also plans to consult on
bringing onshore wind back into the nationally
significant infrastructure projects regime,
meaning decisions on large onshore wind
projects would be made by the Secretary of
State instead of local planning authorities.
This could further speed up permitting.
ICIS analyst Robbie Jackson-Stroud
previously stated that onshore wind is
cheaper and quicker to build but has a thin
pipeline of projects due to previous red tape.
“While there is more opportunity for the
technology, it may take until the seventh
auction round for onshore projects to be ready
to bid in the CfD,” Jackson-Stroud said.
FLOATING OFFSHORE WIND
Pot two, which is for emerging technologies
such as floating offshore wind, saw a funding
increase from £105m to £270m. This should help
the UK move closer to its target to deploy up
to 5GW of floating offshore wind capacity by
2030, despite £15m being ringfenced support for
tidal stream projects.
ICIS previously reported that the increase
in maximum strike price to £176/MWh and budget
of £105m for the sixth auction could make the
round more attractive to developers and could
procure more floating offshore wind capacity.
In the fifth auction, there were no bids for
floating offshore wind amid a low strike price
of £116/MWh and a budget of only £37m for the
pot.
Speciality Chemicals31-Jul-2024
LONDON (ICIS)–Eurozone inflation in July is
expected to rise from 2.5% to 2.6%, above
market expectations, with services being the
driving component, according to data from
European Commission statistics body Eurostat.
Looking at the main components, services are
expected to see the highest annual rate in July
(4.0%, falling from 4.1% in June), followed by
food, alcohol and tobacco (2.3%, also falling
from 2.4% in June) and non-energy industrial
goods (0.8%, compared with 0.7% in June) Energy
holds the position of highest growth, growing
to 1.3% from 0.2% in June.
Despite the higher than expected rate of
inflation, the downward overall downward
trajectory remains intact, according to
analysts at banking group ING, but may not be
at a pace to allow for further rate cuts in the
immediate future.
“Survey data still suggests that the downward
trend in inflation is likely to continue. And
keep in mind that, at the current level,
interest rates still imply restrictive monetary
policy,” said ING chief economist for the
eurozone Peter Vanden Houte.
The debate on whether The European Central Bank
should or should not introduce a cut in
September will only be finalised once another
six weeks of remaining economic data is
reviewed. The central bank’s monetary policy
committee convenes on 12 September.
The eurozone inflation flash estimate is issued
at the end of each reference month. The final
figures for July are schedules to be released
for 20th August 2024.
Ethylene31-Jul-2024
SINGAPORE (ICIS)–Ethane is gaining favor as
the feedstock for steam crackers in China, as
its competitive prices make ethane-cracking the
most profitable route for ethylene production
compared to other options.
Join ICIS LPG analysts Lillian Ren and Yan Wang
as they discuss how Chinese steam crackers are
eyeing ethane as a cracking feedstock.
Several steam cracker operators in China
plan to revamp and switch to cracking more or
only ethane instead of propane.
Propane/butane still takes a larger share
than ethane in steam cracker feedstock slates.
The cost advantage of ethane will narrow
with increasing demand and a single global
source.
Ammonia30-Jul-2024
HOUSTON (ICIS)—Chemical company Clariant
Catalysts has announced the expansion of its
strategic cooperation with global engineering
firm KBR regarding ammonia production.
Clariant said the partners will continue
collaborating on traditional ammonia projects
while significantly increasing their focus on
low-carbon and carbon-free green ammonia
applications.
It further said the solutions will combine
Clariant’s outstanding AmoMax ammonia synthesis
catalysts with KBR’s K-GreeN ammonia
technologies to maximize the economics and
energy efficiency of ammonia production.
For the production of carbon-free green
ammonia, KBR’s technology is combined with
Clariant’s catalyst to convert green hydrogen
with nitrogen from an air separation unit.
Clariant said the partners’ complete green
ammonia solution has already been selected for
10 prestigious green ammonia projects around
the world.
“We are proud of our long and successful
history as partners and are delighted to
strengthen our cooperation with KBR. By
extending our collaboration towards sustainable
ammonia solutions, we generate synergies for
innovations supporting fertilizer production
and the energy transition,” said Georg Anfang,
Clariant Catalysts, vice president syngas and
fuels.
“Our state-of-the-art catalysts optimally
complement KBR’s advanced process technologies
to enable economical and reliable large-scale
production of low-carbon and green ammonia.”
KBR has licensed and designed over 250
grassroot ammonia plants worldwide with
Clariant providing catalysts best suited for
the optimum performance of KBR-licensed ammonia
plants.
Ammonia30-Jul-2024
HOUSTON (ICIS)–Although net income and sales
fell year on year, US fertilizer producer CVR
said it had a solid result for Q2 2024, which
was driven in part by a combined ammonia
production rate of 102%.
The producer of ammonia and urea ammonium
nitrate (UAN) announced during the period it
had a net income of $26 million and net sales
of $133 million for Q2 compared to net income
of $60 million and net sales of $183 million
for the second quarter of 2023.
CVR said its facilities remained consistent
compared to this quarter in 2023 as they
produced 221,000 short tons of ammonia, of
which 69,000 net tons were available for sale.
The remaining balance was upgraded to other
products, including 337,000 short tons of urea
ammonia nitrate (UAN).
In Q2 2023, those levels were at 219,000 tons
of ammonia, with 70,000 net tons available to
sale with the remainder upgraded, including
339,000 short tons of UAN.
The average realized gate prices for UAN has
also decreased with it down by 15% to
$268/short ton, while ammonia dropped 26% to
$520/short ton year-on-year.
During this period in 2023 the average realized
gate prices for UAN and ammonia were at
$316/short ton and $707/short ton respectively.
“CVR Partners reported solid operating results
for the second quarter of 2024 driven by safe,
reliable operations and a combined ammonia
production rate of 102%,” said Mark Pytosh, CVR
Partners CEO.
“The spring planting season experienced some
weather interruptions, however, planted acreage
was higher than expected and demand for
nitrogen fertilizer was strong.”
Pytosh added that they expect to see good
demand for nitrogen fertilizer remaining
throughout 2024 even with prices being higher
than experienced in 2023.
“Our focus for the remainder of the year will
continue to be on safe, reliable operations and
maximizing our free cash flow generation,”
Pytosh said.
Power30-Jul-2024
Spanish renewable capacity is set to rise
drastically between 2024 to 2050
In times of surplus supply and low demand
frequent negative prices have occurred, raising
investor concerns
Spain is investing €160 million in energy
storage to stabilize and sustain renewable
growth
LONDON (ICIS)–Spain should prioritize
investing in energy storage to prevent market
volatility and balance surplus supply.
With low Spanish demand levels for power and
ample renewable power production, there needs
to be more storage capacity to ensure negative
prices are managed.
RENEWABLES BOOM
The country aims to achieve national climate
neutrality by 2050, targeting 100% renewable
energy in the electricity mix, the
International Energy Agency shows.
In the Spanish national recovery and resilience
plan the country dedicates 39.7% of its goals
to the ‘green transition,’ funded partly by €58
million from the Brexit adjustment reserve. The
EU’s long-term strategy also supports this
regional goal of achieving net-zero emissions
by 2050.
Renewable capacity in Spain is forecast to grow
from 98.3GW in 2024 to 209.2GW by 2050
according to ICIS Analytics.
MARKET VOLATILITY
Demand is not expected to keep in pace with the
growth in Spanish renewable supply, according
to ICIS Analytics.
If supply of electricity is to continue to
exceed demand levels in coming years, the
likelihood of negative prices occurring could
remain.
A trader active within the Spanish power market
told ICIS that so far in 2024 there have been
671 hours of null or negative prices, of which
a third are negative with minimums reaching
-€2.00/MWh in June. In comparison to 2022,
where the market only had 3 hours of negative
or null prices.
Balancing mechanisms such as storage will play
a key role in managing this imbalance.
ICIS Analytics shows that Spanish battery
storage capacity is expected to rise from 1.2GW
in 2024 to 9.8GW in 2050.
FUTURE FOCUS
Investors are increasingly concerned about
market volatility, as negative prices deter
further investments in renewable projects.
To address these challenges, the Spanish
government is investing €160 million in grants
for energy storage projects, aiming to bring
600MW of storage online by 2026.
ICIS Analytics predicts that batteries will
begin to make a small presence in Spanish
capacity from 2024 with 1.9GW, however total
supply is expected to continue to overpower
demand through till 2050.
Spanish interconnector capacity is set to begin
to grow steadily from 2028 onwards, according
to ICIS Analytics. In 2024, there is an
upcoming project on the connection between
Spain and Portugal, to update capacity to 5GW.
Following this, in 2033 a 1.8GW interconnection
will be join Spain with UK. Both projects will
enable surplus energy to be sent to
neighbouring regions.
A suggested solution is electrification with
the Sanchez government setting a target of
making 34% of the economy reliant on
electricity by 2030 to increase demand.
However, concerns continue to rise due to fear
that the pace of electrification and energy
consumption may not keep up with the growth in
renewable energy generation.
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