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AleaSoft Energy Forecasting, September 8, 2023.According to AEGE, the situation of the electro-intensive industry in Spain is critical due to high energy costs. In addition to the energy policies needed to make this industry competitive at European and global level, PPAs with renewable energy projects are a good opportunity to achieve competitive energy prices in the long term, although they also involve some difficulties.

On Thursday, September7, the 36th edition of the series of monthly webinars organised by AleaSoft Energy Forecasting and AleaGreen took place, with the participation of Pedro González, Director General of AEGE, and Jaime Vázquez, PPA Director at Econergy Renewables, in the Spanish version of the webinar. The analysis roundtable of the Spanish webinar discussed the benefits of PPAs for large energy consumers. The recording of the event can be requested on the AleaSoft Energy Forecasting website.

The situation of the Spanish electro-intensive industry compared to other European markets

Pedro González, Director General of the Spanish association of energy-intensive industries(AEGE, for its acronym in Spanish), showed that despite the short period between spring 2022 and winter 2023 the Spanish industry is the least competitive compared to other European markets such as France, Germany or Portugal.  As he pointed out, these results are counter-intuitive given that wholesale electricity prices in Spain can be lower than in the other markets.

AleaSoft - Electricity bills electro intensive industry

The reasons behind such a discrepancy lie in the additional costs added to the final energy bill, such as taxes, fees and system costs. The comparison with Portugal on final electricity costs is particularly shocking. Spain and Portugal share the same wholesale electricity market and their prices match 95% of the time. However, final costs for large consumers are significantly lower in Portugal.

According to Pedro González, this simply shows how European framework conditions and favourable national government regulations make it possible to reduce the final energy price and increase the international competitiveness of electro-intensive industries. The lack of such competitiveness and the high cost of final energy can have important drawbacks. First, it leads to a significant decline in industrial energy consumption, around 25% in 2022, with a consequent decline in industrial production. Second, it slows down the recovery from the energy crisis.

Opportunities for the future: long-term contracts with renewable energy sources

In the second part of his presentation, Pedro González focused on the steps that Spain’s electro-intensive industry can take to improve its competitiveness in the global market. Given the importance of this industry to the country’s economy, one solution would be to negotiate with the government on policy changes in order to have uniform regulations with other European countries.

Furthermore, one of the most important opportunities for the Spanish electro-intensive industry is the long-term PPA contracts. In the PPA market, the Spanish position is very strong with lower prices compared to other countries, thanks to it available renewable resources, mainly solar and wind.

As much as PPA seems to be a great solution, they also have some limitations. An important shortcoming of such contracts in the current market situation is the high volatility of energy prices. In such an unstable environment, it is difficult to assess risk and make informed business decisions. Another important limitation in contracting electricity in Spain is the rule that each consuming site can have only one energy supplier. This is a clear restriction for contracting energy directly from renewable energy producers and forces electro-intensive consumers into financial PPA, which, in his opinion, involve a longer and more difficult negotiation process and much more complicated accounting over the life of the contract.

AleaSoft - PPA Sectors Europe

AleaGreen: a hub for PPA opportunities

Oriol Saltó i Bauzà, Associate Partner at AleaGreen, explained that in the context of renewable energy PPA opportunities for large consumers, AleaGreen acts as a hub to connect the renewable energy sector with financial institutions and investment funds, producers and large consumers to explore synergies and opportunities.

AleaGreen is a division of Alea Business Software S.L. that provides long term price curve forecasting reports for the European markets, so that all parties involved in the negotiation of a PPA turn to it for long term price curve forecasting.

Antonio Delgado Rigal, CEO of AleaSoft, commented during the analysis roundtable that the forecasts provided by AleaGreen are used in different phases of the typical development of a renewable energy project: from the initial site exploration phase, through the design phase of the project’s financial model, to the financing phase, where a PPA is often an option.

Source: AleaSoft Energy Forecasting.