By Javier Díaz, Energy Consulting Manager at Ayming
The announcement that multinational Alcoa is set to close three factories in Spain, smothered by the high cost of energy in our country, evidences just how much the Spanish industry is losing competitiveness.
Alcoa has shared that the high price of electricity takes up to 40 percent of the cost of alumina and aluminum production, regardless of the fact that it has received around one billion euros to lower its electricity bill over the past ten years. Furthermore, it currently pays four cents per kilowatt/hour, which is five less than the rest of the industry. The result is that the company now prepares to dismantle the factories located in la Coruña and Aviles, affecting the livelihoods of 700 families.
The interruptibility tender system seems to no longer suffice for electric-intensive industries to continue to be competitive. This is a demand-managing mechanism that compensates companies for interrupting consumption from the grid if necessary.
Rising electricity costs
Concern over the increasing electricity prices continues to grow, especially now, as experts predict the rise will continue in 2019. The dramatic scenario that we are witnessing in the electricity market shows, on one side, that prices are high and corresponds to the need that must be met.
It is impossible to eliminate the impact of having Brent at $80/barrel, coal at $100/ton, gas at over €27/Mwh, and emissions at €20/Mwh. On the other hand, even taking into account the growing price of these commodities, there could be a chance to enjoy lower prices nowadays if the hydroelectric industry’s performance were different.
It is true that the large hydroelectric industry is in the hands of the private sector, but it is still the concession of a public good. It may be considered as an alternative to mitigate the havoc that could come with the consolidation of these high prices; which could last until the reform in price coupling system, if this ever happens.
Searching for solutions
In the meantime, what can companies do to optimize energy costs and decelerate the lack of competitiveness as much as possible? Professional energy management, as well as managing the risks associated from its purchase which. This would give them access to the most up-to-date information about the markets and the possible purchase opportunities presented by means of commercial policies.
In fact, having observed Spain’s electricity markets over the past weeks, September has once again left a daily market at very high prices and an OMIP standing at historic levels, refusing to drop under €60/Mwh. The focus remains on the price of commodities, such as coal and gas, the instability of Brent crude, CO2 emissions rights, the seasonal factor, and, of course, the behavior of the hydroelectric industry; which continues to mark prices at nearly three-quarters of all the hours of the month.
Over the next months, we will have to closely follow the repercussions that the U.S. sanctions on Iran – which came into force in November – have on the market. We will also keep track on the evolution of the trade war, the possible renovation of the OPEC+ agreement, ending in December, and Venezuelan production.
As we can attest from the aforementioned situation, given the complexity and prices in energy markets, it is advisable for companies to have the support of energy advisors. At least if they want to make sound decisions, save money, and continue to be competitive. The chemical, industrial, automotive, food, and pharmaceutical sectors could benefit the most from optimizing these costs.
For more information, visit Energía16