Effects of energy and climate political regulations on electricity prices in paper, steel and aluminium production – a comparison for Germany, the Netherlands, the UK and France

Panel: 3. Matching policies and drivers: Policies and directives to drive industrial efficiency

This is a peer-reviewed paper.

Authors:
Nele Friedrichsen, INCOMPLETE ADDRESS
Ali Aydemir, Fraunhofer Institute for Systems and Innovation Research ISI, Germany

Abstract

The EU aims to reduce energy consumption and expand the renewable energy supply to ultimately reduce greenhouse gas emissions. Member states have introduced different instruments to trigger the necessary changes in the generation and use of energy. Often these instruments lead to price increases for consumers, but include preferential treatment for industrial electricity consumption. We investigate the electricity price differences resulting from several political instruments for sample companies from three energy-intensive sectors: paper, steel, and aluminium production. We find that net power prices may differ by 1.7 ct/kWh to 2.6 ct/kWh for the same company across countries. In Germany we observe a higher burden for a small than for a big paper mill.

We note that the results show diverging power prices, but do not allow a conclusion on international competitiveness since we disregard other factors such as availability of raw material or proximity to key markets. We also neglect differences in spot market prices that influence power purchase prices available to companies.

Importantly, power prices influence the profitability of energy efficiency investments. Lower power prices decrease the pay-off from energy efficiency investments and increase amortization time. But improved efficiency also decreases annual power costs. An efficiency improvement of 5% could decrease power cost by 0.1 to 8 million euro/a depending on the annual power consumption, presumed that the investment is viable. In relation to power consumption before the improvement, this corresponds to savings of 0.23ct/kWh to 0.37ct/kWh. This effect is nearly by factor 10 smaller than policy driven differences. Hence, energy efficiency could mitigate effects from politically driven power price differences, yet, it is unlikely to fully compensate for them. It is good news that preferential treatment is often coupled with the existence of an energy management system or energy efficiency targets.