Impact of energy price increases on industry

Energy is a key element in any industrial activity: it is needed both for industrial processes and for auxiliary activities (cleaning, maintenance, security, etc.) at the facilities.

Who is being affected by electricity price hikes?

The rise in the price of electricity that we have seen this year is not only affecting households (which is where the media’s attention has focused). The entire Spanish business community is also suffering, affecting the competitiveness of many companies. It is worth bearing in mind that only 74 factories account for almost a tenth of Spain’s energy consumption.  

The escalation of energy prices in Spain

Although the increases are taking place all over Europe, in Spain they are more pronounced, setting new records month after month: in January, the price of gas was €27.08/MWh, while in September it was €65.20/MWh (an increase of 140%); electricity started the year at €60.17/MWh and in September it cost €156.14/MWh (an increase of almost 160%).

What industries consume the most electricity?

Within the industrial landscape, those that have been most affected have been electricity-intensive and gas-intensive industries. Theformer include companies that transform raw materials into products, such as iron and steel, non-ferrous metallurgy, chemicals, industrial gases, electrode manufacturing, paper manufacturing, etc.; the latter include enamel and tile manufacturers.

The escalation of electricity prices is affecting other countries such as the United Kingdom, where some companies dependent on gas and electricity have been forced to cut production. China has also experienced power outages in industry and homes, which has led the government to order the country’s main energy companies to secure supplies for this winter at all costs, even going so far as to increase the use of coal.

What solutions are proposed in the face of rising electricity prices?

The situation is critical for companies affected by this price hike. On certain occasions it may be viable to start up the machinery and lose money for a short period of time or lose competitiveness, but that is not a reasonable decision when the duration is indefinite. Some companies have already warned that, if this continues, their business will not be viable next year. According to experts, the situation is not expected to improve or change in the short term. Those in the know are in fact saying the situation is likely to continue until 2023.

One solution being applied in some companies is to stop production during peak hours or to slow down production generally. This would imply a reduction in employment in the first case, and a reduction in the amount produced in the second.

The alternative would be to raise the end price of the product in sync with energy price rises. This is an unfeasible alternative because the price would change every week according to the electricity bill, leading consumers to opt for cheaper imported products. Both companies and individuals are calling for government measures to alleviate these circumstances and keep from affecting the most disadvantaged.

How has the increase in industrial energy tariffs affected ULMA Forja?

How much electricity does a factory consume?

According to Spain’s Association of High-Energy-Consumption Businesses (Spanish acronym AEGE), electricity can represent up to 50% of the costs at energy-intensive companies. Steelmaking requires a lot of electricity, so the metallurgical industry is highly sensitive to the cost of electricity: it accounts for around 25% of the total electricity costs of all economic activity in Spain, and is a major part of the industry’s production costs. It is therefore difficult for such companies to handle such a sharp rise. The electricity they consume has an impact on their production costs and on the end price, causing competitiveness problems in such a globalized market.

Production costs have risen dramatically.

As for ULMA Forged Solutions, the rise in the cost of energy has had a significant impact on production costs, since, during the processes of flange manufacturing, we make intensive use of electricity and gas, and both have been subject to unprecedented cost increases.

The cost of electricity has quadrupled in just one year. This tremendous price surge has forced us to change our ways of working, diverting production to the times of day when energy costs are lower and trying to minimize the short-term impact.

However, in the medium term we expect the government to take appropriate measures to ensure that it does not affect the competitiveness of energy-intensive companies.