EU electricity proposals ‘not satisfactory’ to keep chemicals competitive – Spain’s Feique

SAO PAULO (ICIS)–The latest EU proposals to reform the electricity market fall short of guaranteeing the competitiveness of energy-intensive sectors such as chemicals, Spain’s trade group Feique said on Wednesday.

Earlier in March, the EU published proposals to reform an electricity market which currently prioritises the highest-paid feedstock to set the final prices.

As natural gas costs went through the roof after Russia invaded Ukraine, those prices have been prioritised in the final price for companies and households over other cheaper feedstocks such as renewables.

On Wednesday, Feique said Spain’s chemicals industry – the fourth largest within the EU after Germany, France, and Italy – will continue to face up to a challenging energy costs picture in 2023, with the EU’s proposals falling short to address that.

The trade group said Spain’s chemicals have four priorities when it comes to the electricity market: guarantee of supply, decarbonisation, “reasonable profitability” to promote investments in clean electricity generation and be able to enjoy “competitive and predictable” prices in the medium and long term.

“The European Commission [the EU’s executive body] proposals to reform the electricity market do not give a satisfactory answer to any of those four points,” said Feique’s president, Teresa Rasero.

“The eternal promise that an electrical system with greater renewable generation would promote better prices – because of their low variable costs – will never materialise as long as we maintain the current system.”

Rasero is also the CEO of Air Liquide Spain, the industrial gases major’s subsidiary in the country.

Feique said it supports price caps for electricity produced with nuclear, hydraulic, and renewable sources; Spain’s production capacity with those three energy sources combined would represent 150TWh/year, a volume equivalent to the “entire demand” for electricity from the country’s industrial sectors.

DIRECT HELP
The trade group also demanded more ambitious subsidies to help companies currently struggling with high energy costs.

While the EU is very meticulous in how state aid can be granted to private companies – arguing they could distort a free market – the extraordinary situation in 2022 prompted the 27-country bloc to allow some state aid for industrial players struggling with the cost of energy.

The direct financial aid offered by the Spanish government so far “is very far from the effectiveness”  of packages offered in other EU countries, said Feique.

So far, subsidies in Spain have totalled €825m, according to figures by Feique, but the industry body believes the Spanish coalition cabinet led by Pedro Sanchez should approve larger amount to financially aid industry,

“This situation contrasts with countries such Portugal, where gas consumption is much lower than in Spain, who have already granted €1bn in financial aid, or Germany, where the government has promised €25bn,” it said.

“Proportionally, it would be necessary for Spain to reach the Portuguese aid level, which would equal to around €5bn.”

‘MORE AMBITIOUS’ INDUSTRIAL PLAN, CCS PUSH
Feique also demanded a “more ambitious” industrial plan from the EU authorities than that presented earlier this year, the so-called Green Deal Industrial Plan (GDIP).

The bloc was forced to respond to the US’ Inflation Reduction Act (IRA), which since its passing in August 2022 has spurred green investments in chemicals and other industrial sectors on the back of generous tax breaks and other incentives.

Apart from a “structural” reform in the electricity markets, Feique said the GDIP should include a “guaranteed framework” for stable and long-term establishment of renewable technologies that can act as substitutes for fossil fuels such hydrogen, methane, renewable gases, and “emission-neutral eco-fuels”.

It added it is urgent to “review” the emission trading system in place to avoid “actions that distort” the price of carbon emissions.

Feique concluded saying that without carbon, capture, utilisation, and storage (CCUS) technologies, Spain would not be able to meet its 2050 net-zero emissions target.

“This is the only technological alternative that allows the removal of CO2 from the atmosphere directly or indirectly and would contribute significantly to reduce emissions in sectors with hard-to-abate emissions … where CO2 emissions are intrinsic to the production process,” said Feique.

“In Spain’s case, hard-to-abate emissions from energy-intensive sectors in 2019 stood at 21.3m tonnes of CO2, representing 33% of the industry’s emissions. Therefore, it is necessary to establish a Spanish roadmap for the real application of the CCUS technologies.”

Feique confirmed on Wednesday sales in Spain’s chemicals industry rose strongly in 2022 on the back of higher selling prices, but it also said production had barely risen.

Moreover, production in energy-intensive subsectors such as base chemicals fell sharply as the year went by (see graph), one of the reasons for Feique to demand from the EU and Spanish authorities urgent action on energy costs.

Base chemicals hit hard by energy costs
Subsector production evolution in Spain, 2022

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Front page picture: Spain’s Tarragona chemicals park in northeast’s Catalonia; archive image 
Source: Carlos Sanchez Pereyra/imageBROKER/Shutterstock 

Focus article by Jonathan Lopez