Transforming Spain's Industrial Energy Costs for Competitive Decarbonization
The competitiveness of Spain's industrial sector heavily depends on the cost of energy, which historically has been a significant burden compared to global leaders like the United States and China. Currently, the energy prices faced by Spanish industry are considerably higher, with electricity costs averaging 17 cents per kilowatt-hour and gas prices tripling those of the United States. This disparity affects the competitive edge of Spanish manufacturing and hampers efforts toward sustainable industrial practices. However, Spain possesses ample regulatory and technological scope to address these challenges and significantly reduce energy costs.
The European Union has initiated the Clean Industrial Deal, aiming to make energy more affordable by reducing taxes, charges, and tariffs while encouraging renewable energy procurement through PPAs. The strategy also emphasizes market integration and common financing instruments to foster a more efficient and cost-effective energy market across Europe. For Spain, these measures offer an opportunity to capitalize on its renewable energy potential and align its policies with a pragmatic pathway for decarbonization.
Electrification is central to decarbonization, with virtually every sector needing electricity to replace fossil fuels. Although natural gas will continue playing a vital role, particularly in sectors like steel and cement, emphasizing a reduced and safer dependence on gas remains crucial. Spain can leverage its capability to address its energy deficit of tariffs, which is projected to be fully settled by 2028, and its progressively declining costs for renewable generation, including solar, wind, and nuclear energy.
Strategic policy reforms could eliminate outdated taxes and levies, such as the 7% IVPEE tax, hydraulic canon, and nuclear waste fuel tax, significantly lowering the cost of electricity. Concurrently, targeted reductions in tariffs for capacity and flexibility could decrease electricity costs by up to 20-40 euros per megawatt-hour by 2028 and 2035 respectively. These reforms could enable prices for industrial electricity to fall into the 6-7 cents per kilowatt-hour range, positioning Spain as one of the most competitive energy markets globally.
Further, boosting renewable energy procurement through PPAs, expanding flexible grid infrastructure, and extending nuclear plant lifespans are critical to this strategy. These measures would not only decrease costs but also enhance supply security and support a pragmatic transition to a low-carbon economy. Ultimately, Spain's ability to implement these reforms will determine whether it can attain a competitive advantage in an increasingly decarbonized industrial landscape. If successful, the country can emerge as a leader in energy-efficient, sustainable manufacturing in Europe and beyond, fostering economic growth aligned with climate commitments.