Energy Chamber and businesses urge action in response to price hikes

Ljubljana – Soaring global energy prices are raising concerns in Slovenia, in particular in energy-intensive industry, which is already scaling down production in response to the situation. The Chamber of Commerce and Industry (GZS) and the Energy Chamber are calling on the government to act. Boosting self sufficiency is also called for.

Pots-pandemic recovery is one reason for the record-high hikes, but deeper reasons are linked to transition from fossil to renewable energy sources with prices of emission coupons going up as well, Ana Vučina Vršnak, the executive director of the Energy Chamber, has told the STA in an interview.

Price trends will depend very much on winter temperatures an gas supplies and consumption, which is why major price shifts in both directions are possible. Vučina Vršnak offered three possible scenarios, the best-case one being in the event of a mild winter, increased gas supplies from Russia and a fast and effective response from politics.

Due to a shift to electricity across all industries, demand is also up for electricity. Consumption has already reached 2019 levels and the rising trend is expected to continue next year along with a further increase in global prices. Global demand for natural gas is also expected to keep growing and the Energy Chamber does not expect the situation to normalise before the end of 2022.

The hikes affect business as well as individuals, creating pressure on inflation. The worst off is energy-intensive industry, which is still much extensive in Slovenia. Vučina Vršnak says that some companies are warning they are on the brink of collapse, while she also notes the impact on low-income households and energy poverty.

Due to state aid provisions, short-term measures are in the hands of the relevant state authorities, which Vučina Vršnak says can opt either for price caps, reduced levies or subsidies for the most vulnerable groups. The chamber also believes that the Climate Fund rules could be temporarily adjusted to subsidise prices of purchase from domestic fossil power plants for the largest consumers.

The chamber warns against potential cuts in contributions to network charges to reduce bills, noting that a good and stable network is key to reliable energy supply. “Action should thus be mainly oriented into investing in the system’s stability and sufficient capacities, that is vital energy infrastructure and network,” says Vučina Vršnak.

The Energy Chamber has conducted talks with representatives of energy-intensive industry at the GZS to hear out their proposals about how the state can help to alleviate their situation at least in the short term. Vučina Vršnak says government officials are aware of the situation, but the two chambers are yet to receive official response to their calls.

“However, for the most vulnerable at least, the situation is such that it calls for quick measures,” said Vučina Vršnak. Apart from short-term measures, Slovenia should also work toward energy self-sufficiency. Although the country can only rely on imports in the case of oil and gas, it has enough potential for electricity production to become self-sufficient.

The country is planning to close down its sole coal mine and the coal-fired power plant TEŠ, which account for about a third of power output. New sources will have to be secured as soon as possible where Vučina Vršnak noted that Slovenia failed to raise the share of renewables in its energy mix to 25% by the end of last year.

Slovenia’s largest industrial electricity consumer is Talum, the Kidričevo-based aluminium producer, which also uses natural gas for production. CEO Marko Drobnič has told the STA that energy costs represent almost a fourth of their costs of material and services, which compares to 10-15% per average comparable aluminium manufacturer in Europe.

The company has been forced to scale down production of primary aluminium from electrolysis a while ago as the process accounts for 90% its electricity needs and prices of aluminium on global commodity markets fell to a 15-year low last year. For the past year they have been operating at just half the capacity.

To reduce the negative impact of the current extreme situation in the energy market, the company will move to only a third of capacity starting from November. The share could potentially be reduced to a fourth at great costs, but lowering that share further would entail a full shutdown of furnaces, which would mean mean an end to aluminium production for ever.

“Restarting it would simply be too costly. We will make all the products we’ve promised to the buyers for this year. We’ll offset the reduced aluminium output with bought aluminium. Next year, we’ll be forced to reduce volume sales despite huge demand,” says Drobnič.

The company thus expects the government to act fast. They expect a fast lifting of all the burdens mandated by Brussels for energy-intensive industries, which Drobnič believes should be the “hygienic minimum of a competitive business environment in Slovenia”.

Similarly, SIJ, the Slovenian steel group, expects the state and the EU to act to mitigate the situation, as does Paloma, the tissue maker, which has also been impacted heavily by rising prices of energy and emission coupons, despite investing heavily in technological modernisation.

Calling for fast and bold measures to prevent further damage to business, Paloma expects compensation for half a year until the markets have stabilised. The company has already increased sales prices and announced it will downsize production.

Other affected companies include Helios, the coatings maker, in particular its subsidiary Belinka Perkemija, which produces hydrogen peroxide, a green chemical.

The company’s managing director Franci Stele expects measures similar to those introduced by Spain and Portugal, which have capped own electricity production margins, and will use own funds to reduce the transfer of higher prices of gas onto end consumers. He also expects most of the levies, duties and extras for energy to be scrapped along with excise duties related to CO2.

Unless measures are taken, jobs will be lost, he has told the STA.