IEA: Power consumption in the basement – Europe’s heavy industry is not recovering

2023-07-19 07:15:48

While power consumption increased in most countries around the world in the first half of the year, it fell noticeably again in Europe. That writes the Paris-based International Energy Agency (IEA) in a report published on Wednesday. In the EU, the minus compared to the same period last year was 6 percent. Last year, their electricity consumption fell by 3.2 percent within a year, as sharply as it was last in 2009 during the financial crisis, apart from the slump in the Corona year 2020.

For the year as a whole, the IEA expects a minus of 3 percent compared to 2022. “This would have reduced electricity consumption in the EU for two years in a row, to an extent that has never happened since the founding of the community,” shares the IEA continues and adds: “For 2024 we expect a moderate increase of 1.7 percent, which is, however, associated with considerable uncertainties with regard to the recovery of industrial demand”.

According to the IEA, the fall in demand for electricity in the EU last year was explained primarily by plant closures and production cutbacks in energy-intensive industry. Almost two-thirds of the decline was due to them. The weather, on the other hand, had “a lesser influence than initially assumed”.

“Most of the drop in demand is due to non-weather-related factors,” writes the IEA, referring to an analysis from 2022. Electricity savings from the mild winter were partly offset by additional cooling needs in the hot summer. Changed behaviour, voluntary energy saving measures and increases in efficiency also played a significant but not dominant role in the decline in electricity consumption in the EU last year.

Four options are on the table

According to the IEA, aluminum smelters, steel mills, and paper and chemical factories recorded the sharpest declines in production last year. In the case of the latter, the restrictions imposed by corporations such as BASF and OCI from the Netherlands were so extensive that Europe became a net importer of chemicals. The automation industry has also suffered. As in the paper industry, small and medium-sized companies have gone bankrupt because they can no longer operate profitably with the high energy prices.

According to the IEA, there was no significant recovery in the energy-intensive industry in the first half of this year, despite significantly lower wholesale prices for electricity and gas. Some steelworks have reversed the cuts they made in 2022. However, in sectors such as the aluminum industry, temporary production cuts were followed by permanent plant closures. The energy agency cites Talum from Slovenia and Slovalco from Slovakia as examples of this.

A comment by Bernd Freytag, Mainz Published/Updated: , Recommendations: 32 Ralph Bollmann, Berlin Published/Updated: , Recommendations: 51 Niklas Záboji, Paris Published/Updated: , Recommendations: 9

The IEA stresses that industrial competitiveness in Europe is under pressure – especially since further challenges have been added to the increased energy costs with subsidy packages in America such as the US Inflation Reduction Act, the Green Transformation Plan in Japan and tax incentives in China. All of this has consequences for production and investment decisions. In this context, the IEA refers not only to BASF but also to the car manufacturer Volkswagen, which wants to build a battery plant in Canada and not in Eastern Europe because there are lower electricity costs and higher subsidies.

“The future of energy-intensive industry in the EU is at a crossroads,” concludes the Energy Agency. The Europeans would now have to decide how they want to proceed. Four options are on the table: first, minimal state aid and a switch to producing high-value goods, which, however, increases vulnerability to geopolitical tensions. Secondly, a targeted aid strategy with control of key sectors. Third, comprehensive support through energy price subsidies, which while helping to sustain industry and jobs, burden other consumers and taxpayers and require a long-term commitment. And fourth, promoting “green” heavy industry, which would be in line with climate goals but would come at a significant cost.