Malcolm McHale, President of FACE, quoted in Reuters

EU offers energy-hungry sectors guidance on long-term power deals

LONDON, July 22 (Reuters) – The European Union will help energy-hungry industries, such as aluminium smelters, clinch long-term electricity deals to lure back major employers that have quit the bloc partly because its power is so expensive.

The offer of free guidance by the European Commission (EC) is part of a re-industrialisation drive now climbing up the political agenda after many plants closed in recent years with thousands of job losses that often hit poor areas hardest.

Up to 40 percent of the cost of producing aluminium comes from electricity prices, which in the EU are twice those of the United States and substantially higher than in most developing economies, making it hard for Europe’s smelters to make profits.

Although long-term power contracts which might help offset these price disadvantages are not illegal in the EU, they are complicated in practice due to the bloc’s own regulation meant to promote competition among electricity suppliers.

“We want to make sure we provide a regulatory environment that’s conducive to investment and growth in the industrial sector,” said Fabrizia Benini, cabinet member in the office of Antonio Tajani, vice-president for industry in the Commission, the bloc’s executive body.

“We believe long term (electricity) contracts between suppliers and customers provide legal planning certainty which is something that is conducive to long-term investments,” said Benini, who added that the Commission would offer the free guidance to all energy-intensive industries.

According to Reuters data, about 2 million tonnes of aluminium production have been shut in Europe since 2008, while global output grew by about 10 million tonnes.

The energy-intensive steel industry has also suffered, with about 20 million tonnes of steel capacity shut down in the EU since 2009, according to European steel association Eurofer.

“The Commission wants to provide incentives for companies to sign long-term contracts. Obviously contracts signed by monopolists are excluded from this process,” said a source close to the Commission.

UNCERTAINTIES

But detractors say long-term contracts in the EU are complicated by uncertainties over future energy supply, and legal guidance will not lead to more of them being reached.

“Which electricity supply company has control of energy supply with a big enough profit margin to say it pays us to do this? Unless they’ve got nuclear power (or) unless it’s done with government support, it’s highly unlikely they’re going to do it,” said Malcolm McHale, president of the Federation of Aluminium Consumers in Europe.

He pointed to Rio Tinto’s deal to sell its aluminium plant in Saint-Jean-de-Maurienne to Germany’s Trimet Aluminium AG, which was backed by the French government and by energy group EDF.

The sale was triggered by the expiry of the global miner’s 30-year-old energy supply deal with EDF.

Offers of legal guidance on long-term electricity contracts are part of a Commission “action plan” launched in June to revive the steel industry, where restructuring has caused the loss of some 40,000 jobs in recent years.

The Commission is conducting a parallel “fitness check” for aluminium, which is likely to result in an “action plan” before the year end, though aspects of the steel plan already now extend to industries like aluminium.

Source: Reuters.