Energy Crisis: causes, consequences & win-win solutions – Perspectives from Europe’s electricity and metals sectors

22Nov
2022
  • Dinner debate in Strasbourg

Chaired by Jerzy Buzek MEP, President of the EEF

Speakers:
Cillian O’Donoghue, Policy Director, Eurelectric
Alain Taccoen, Chair of the Customers and Retail Services Committee, Eurelectric
Guido Janssen, Vice President European and USA Smelting, Nyrstar, Member of Eurometaux

The EEF Members from the electricity and non-ferrous metals sector presented the effects that the current energy crisis is having on their businesses and reflected with MEPs and other EEF Associate Members on possible win-win solutions.

Cillian O’Donoghue, Policy Director, Eurelectric, first carried out a diagnosis of the root causes of the energy crisis which, he said, are in the gas market: since gas and electricity prices are correlated, the lack of gas in the system has led to an unprecedented sharp increase in electricity prices. He clarified the spike experienced during this past summer was also influenced by reduced hydropower capacity and maintenance of some nuclear reactors in France, but 80% of it depended on gas prices. Overall, wholesale electricity prices went up by +532% and retail prices by +84% since January 2021.

Once the causes and consequences assessed, Alain Taccoen, Chair of the Customers and Retail Services Committee, Eurelectric joined his colleague to discuss together possible solutions on different timeframes. Measures to protect vulnerable consumers, moderate demand during the winter, increase liquidity in the electricity market, address high and volatile prices in the gas market, and provide certainty for investors are all required to cope with the short-term effects of the crisis. On the medium term, REPowerEU is a good exit strategy, and the speakers particularly underlined the importance of further simplifying permitting procedures to enable a fast and massive rollout of renewables. A European supply chain of critical raw materials and investments to reinforce the electricity grid will also be key to this end. On a longer perspective, the EU will need to work on two aspects. First, on measures tackling the structural problems underpinning the current crisis. The speakers recognized this may entail changes to the electricity market design, yet since it has delivered, what is needed is more an evolution than a revolution, they said. Second, the EU will need to adopt solutions stabilizing prices and ensuring that the benefits of a net-zero-emission energy mix are delivered to customers: encouraging more and more long-term contracts could be one way forward.

Guido Janssen, Vice President European and USA Smelting, Nyrstar, Member of Eurometaux, explained that the non-ferrous metals sector is one of the most hit by the current crisis because of its electro-intensity. In usual times (electricity prices at around 50 EUR MW/h) electricity accounts for about 40% of metals’ production costs. Today, these costs are up to 500 MW/h, amounting to 200% of the sector’s production costs and making it almost impossible to make any margin. 50% of aluminium and zinc production capacity as well as 30% of silicon and alloy production have been forced to go offline this last year, while the smelters still online operate at a loss. Since metals and strategic raw materials are fundamental for the energy transition, the EU risks becoming increasingly dependent on imports from third countries, with negative consequences not only in economic and strategic terms, but also from an environmental perspective: outside the EU, metals production is more emission intensive. Mr Janssen said the industry needs emergency support to survive the current situation, for example measures to address high electricity prices yet without affecting long-term PPAs which, together with renewable energy, are crucial for the future of the industry. He concluded by underling the need for the EU to protect its strategic industries and keep metals production within the Union.

The exchange that followed was quite a heated one. Several EEF Members, both industry representatives and MEPs, shared their thoughts on this pressing issue, some being more critical of the EU response, others calling for a more optimistic attitude. They discussed several points, among which permitting, long-term contracts both in electricity and gas, the critical raw materials act and the foreseen reform of the electricity market design.