CERAME-UNIE LIAISON OFFICE OF THE EUROPEAN CERAMIC INDUSTRY
CONTRIBUTION TO THE EU ENERGY STRATEGIC REVIEW
URGENT MEASURES ARE REQUIRED TO IMPROVE THE FUNCTIONING OF
ELECTRICITY AND GAS MARKETS
The Alliance of Energy-Intensive Industries proposes a set of solutions
ndBrussels, 22 September 2006
； Conditions are needed to allow internationally competitive electricity and gas prices.
； The electricity and gas markets are not functioning.
； Better regulation must be enacted and measures are urgently needed.
The Alliance of Energy Intensive Industries is a strong supporter of the new energy strategy for Europe set out in the Green Paper “A European Strategy for Sustainable, Competitive and Secure
Energy”. Our position focuses predominantly on the objective of the Green Paper to improve the internal energy market and to obtain a secure and competitive energy supply for industry. In this respect it is absolutely crucial that the Strategic Review recognizes that one of the most important objectives of the internal energy market is to promote the competitiveness of EU industry, thereby contributing to growth and employment. Securing energy supply at competitive prices is therefore crucial. This is of particular importance to the energy intensive industries.
If the EU wants to secure the strategic supply of essential basic and intermediate materials to its secondary industry and the subsequent value added chain, it should build a framework allowing the market to provide security of supply and competitive energy prices for energy intensive users.
Electricity and gas prices must be competitive internationally
The key consideration in the achievement of this objective will be to obtain internationally competitive market-driven prices in relation to the unique profile of the energy intensive industries :
; The industry has a constant, high, predictable and very stable consumption profile of electricity
and gas, during both peak and off-peak periods, with options for interruptibility, compensation
of reactive energy, high pressure/voltage connexions, etc. Although this stable demand
enables the producers to limit costs and risks, these benefits are not taken account of in the
energy prices paid by the energy intensive industries. This situation is especially adverse when
industry is required to purchase electricity from trading platforms, designed to provide
day-ahead balancing prices, as is the case currently when long term contracts expire. ; In addition, energy represents a very high proportion of overall production costs. Any price
increases will therefore have a very high impact on margins, thereby strongly influencing the
viability of energy intensive industries.
; Our products are traded as commodities with prices set globally on a competitive basis. ; Regional cost disadvantages cannot be passed through to the price, but simply reduce the
commercial viability of operations.
Given this unique profile, the energy intensive industry needs truly competitive electricity and gas markets delivering prices with long-term predictability and stability.
The electricity market is not functioning
As identified by DG Competition's Energy Inquiry, there are currently no properly functioning electricity markets in the EU. Indeed, over the recent years, electricity prices have risen significantly above pre-liberalization levels, and they are still increasing. On mainland Europe, gas and oil are only minor fuels for power generation and increased gas/oil costs can be no justification for steep electricity price increases. The main reason is that power markets within the Member States are highly concentrated, volatile, short-term and illiquid, and prices are being imposed by the power generators in a distorted manner. Generators have linked their sole reference price to the cost of operating the marginal (highest cost) generator required to meet electricity demand in the system.
A major cause of the current power price increases is the pass through of COcertificates as 2 ,
generators are using their dominant position in the power market to take advantage of the EU Emission Trading System (EU ETS). For example, the pass through of CO allowance prices in the 2
power price in Germany is 60-80%, leading to huge distributional impacts and no environmental benefits. The EU should insist that EU ETS be modified to solve this excessive pass through and to deliver the required environmental g