131th March 2006

Competitiveness of and access to cost effective energy inputs for energy intensive industry

Contribution from

Alain CAPMAS

Cement industry

231th March 2006

Definition of “energy intensive industry” Cement sector EU25

1. Level of energy used :- Fuels: 22 Mtce/year = 572 000TJ/y- Electricity: 24 TWh/year = 86 000TJ/y

2. CO2 emission: 700kg/t cement at 65€/t =11kgCO2/€ of turnover

3. Base load use of energy: Alliance of EEI:

CERAME-UNIE LIAISON OFFICE OF THE EUROPEAN CERAMIC INDUSTRY

331th March 2006

Main energy feedstock and environmental factors impacting competitiveness: electricity

• The cost of electricity in Europe has increased exactly like CO2 price for energy intensive base load users.

• Price setting is out of the standards for commodities trading

30

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08.1

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22.1

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01.2

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04.2

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Po

wer

Pri

ce, €

/MW

h

0

5

10

15

20

25

30

35

CO

2 Certificates

Price, €/t

Baseload Futures Price for 2006 CO2 Certificates Price

Power and CO2 Certificates Prices' Developments

Correlation factor: 0.98

431th March 2006

Main energy feedstock and environmental factors impacting competitiveness: electricity

• Electricity price in Europe has become a risk management issue for EII, greater than in other continents for long term contracts: – Africa: Eskom: 150Rds = 20€/MWh+d – Asia : China: 40USD = 33€/MWh– Canada: HydroQuébec:40CAD = 28€/MWh– USA: West Virginia: 30USD = 25€/MWh+d

• These prices are for 2006 and most are indexed on coal prices.

531th March 2006

Main energy feedstock and environmental factors impacting competitiveness: electricity

• Increased demand in those countries means coal power plants, even for baseline users.

• Greater risk means fewer investments to improve plants efficiency.

• Energy Intensive Industries need to be able to establish long term contracts.

631th March 2006

Developments over time of the different factors: Electricity

– A real commodity market pricing is a must, with CO2 price cap or “safety valve”.

– Long term contracts are needed for visibility and investment strategies of the energy intensive industries.

– The future European Common Energy Policy should take into account EII needs.

– Nuclear seems to be the only middle term option for base load users.

731th March 2006

Main energy feedstock and environmental factors impacting competitiveness: fuels

• Cement industry (EU25)– Produces 238 M tonnes/year of cement at 65€/t– Uses 22 M tonnes of coal equivalent (tce)

= 100 - 150 tce/day/kiln)– Valorises 3,6 M tce of waste fuels– emits about 150 M tonnes CO2 in Europe – 2/3 come from decarbonation, process emission

• Imports– 34,3 M tonnes of cement in 2005 (14%)– 16 M tonnes of coal equivalent (71%)

831th March 2006

Main energy feedstock and environmental factors impacting competitiveness: fuels

• Cement industry has a high CO2 price sensitivity:montant des quotas dans la Valeur Ajoutée ; Industrie ; simulation n°1

0 5 10 15 20 25 30 35 40 45 50

Sidérurgie

Ciment

Chaux

Verre

Papier

Céramique

Tuiles briques

%

2001-PNLCC

EffEn cible bis

EffEn cible

ES cible bis

ES cible

ES 97/01 bis

ES 97/01

3années 97/2001

moy 97/99

2001bis

2001

1990

CEMENT

MEDD/D4E/DPPRNovembre 2003

CO2=10€/t

931th March 2006

Main energy feedstock and environmental factors impacting competitiveness: fuels

• Cement industry has a huge CO2 price sensitivity– CO2 at 27€/t means an impact of 20 €/t of cement at

65€/t average (+30%)– Import freight rates are:

• 11.5 to 13 €/t of cement from the Mediterranean area (+160kg CO2/t cement due to transport)

• 20 €/t of cement from the Far East (+94kg CO2/t cement due to transport)

– ETS has created a strong distortion of competition on marginal tonnes produced, with a negative impact on GHG

1031th March 2006

Main energy feedstock and environmental factors impacting competitiveness: fuels

• European cement industry keeps optimising fuel mix:

Fuel mix (2002) % M tceCoke 49% 10,7Coal 24% 5,2lignite shale 6% 1,2Fuel oils 4% 0,9Gas 1% 0,2wastes 13% 2,8biomass 4% 0,9TOTAL 100% 21,9

Biomass is neutral for CO2

Why not consider wastesto be opt-out of the ETS?Each tonne of waste fuel reduces imported fuel withequivalent thermal efficiency

1131th March 2006

Main energy feedstock and environmental factors impacting competitiveness: fuels

• Cement industries keep optimising waste fuel mix:

Country 2002 2004 2005Netherlands 72%Switzerland 47,8% 51,2% 46,8%* Germany 33% 40,2%France 34% 29,5% 28,1%*Sweden 30%Belgium 30%Autria 29%Europe 16%

* The decrease is mainly due to the reduction of available biomass

European harmonisation could improve energy supply

1231th March 2006

Developments over time of the different factors: Fuel mix:

– Reduce the fuel imports by optimising the waste fuel stream efficiently (not incompatible with the reduction of waste production). Opt-out waste fuels of the ETS.

– Develop a strong policy on biomass fuel: • Biomass offer has not increased since ETS.• 600ha of land could provide 10% of fuel for a 1Mt cement

plant

– Reduce the fuel imports by promoting new technologies when possible (long term)