Summary of Energy Reform Impact on Spain’s Chemical Industry
The medium and long term prospects for reform in the electricity market remain uncertain. Industry voices warn that any minimal changes could still jeopardize the future of Spain’s strategic chemical sector, which relies heavily on energy cost competitiveness to maintain wealth generation and quality employment. A leading figure from the Spanish Chemical Industry Business Federation, Teresa Rasero, stresses that high energy prices continue to constrain industry activity. Despite hopes that the original Spanish proposal would reform the electricity market, there is a sense that Europe has moved ahead with a plan that may not adequately address Spain’s situation. The general manager, Juan Antonio Labat, concurs, arguing that the reform as proposed will not solve the core problem of high prices or deliver meaningful relief.
The reform package predominantly emphasizes contracts for difference, a mechanism described as public term contracts between the state and the generator. When the market price is low, the contract ensures a stable price; when prices rise above a defined limit, the contract requires the generator to return part of the excess. In practice, this means governments could collect revenue when prices are high and redistribute it later. Feique characterizes these measures as a form of aid available to budget-rich countries like France and Germany, but not to Spain. Labat notes that such state aid can preserve competitiveness in some nations, yet Spain lacks this opportunity.
Without a broad royal reform, the sector signals a need for action on gas price and carbon costs. The chemical industry seeks a proposal from the next government to decouple electricity pricing from industrial competitiveness. The goal is to create an “industrial rate” that aligns with the Franco-German framework, where specific rates apply to industry. In France, Arenh sets a price up to a certain cap, while in Germany a fixed megawatt-hour charge exists. The industry believes such national-level measures could help, but Spain currently faces a regime with substantial renewable energy charges and very low marginal costs that do not reflect true industrial electricity needs. Labat emphasizes the challenge of balancing renewable energy incentives with the requirement for a stable, industrial electricity price.
During the energy crisis, late 2021 brought a policy known as sub-marginal auctions. This policy forced large electricity producers to transfer a portion of their cheaper, inframarginal generation—nuclear and hydro—to independent marketers and major industries to help manage costs. Large energy firms argued that much of their output had already been sold and could not be brought online for redistribution. The situation illustrates how high electricity prices can ripple through the sector, while intervention capacity remains limited by external factors such as geostrategic dynamics.
For some factories, closures may be inevitable if energy costs stay elevated. Yet the issue extends beyond a few facilities. Gas price levels also influence competitiveness, especially when compared to other regions. Labat notes that the price at the Henry Hub in the United States often appears cheaper than European gas prices, reinforcing the need for a more favorable pricing framework in Spain. In the current climate, the sector waits for year-end results and hopes for a brighter export outlook, though revenue is projected to fall by around 6.8 percent. Production, however, is forecast to rise modestly, by about 0.8 percent, driven by activities in basic chemistry used in processes such as chlorine and by intensified electricity and gas consumption. Since mid-2022, basic chemistry has shown improvements, but the overall trend remains fragile, with a near 12-point decline expected for 2023 due to elevated energy costs and weak demand.
Despite these pressures, Feique has pointed to clear signs of weakness within Spain’s chemical sector, reflecting broader European industrial challenges. The broader European economy has experienced a downturn in productivity, with a noticeable slowdown beginning in the second half of the previous year and continuing into the current year. As the year ends, industry observers expect continued strains on production and investment, underscoring the need for policy measures that stabilize energy costs while maintaining incentives for innovation and competitiveness. The overall message from Feique is cautionary: the Spanish chemical industry remains vulnerable, even as some indicators suggest short-term resilience in certain sub-sectors.