Energy prices threaten 16% of Catalan SMEs and 320,000 jobs

BarcelonaA devastating survey of its associates by employer association Pimec reveals increases in the price of energy could wipe out 16% of Catalan SMEs and lead to the loss of 320,000 jobs. To avoid it, the first thing this employer association is requesting – as it has already informed the authorities in Brussels – is to exclude gas from the electricity pricing system. This survey was carried out in February, before Russia's attack on Ukraine, which has made energy even more expensive and could make the situation even worse. The survey was carried out on 350 small and medium-sized Catalan companies, 41% of which are industrial.

The president of Pimec, Antoni Cañete, at the presentation of the survey has emphasised the need to unlink gas prices from the electricity pricing system. Cañete explained that more than 16.4% of SMEs surveyed conclude that if the price of energy continues its upward trend or if it remains at current prices, it could compromise the continuity of their activity. In fact, 45.6% surveyed SMEs say the increase in energy prices is affecting them in a worrying way and 34.7% say that it will affect them, although to a limited extent, while only 3.3% say that it will not affect their activity.

By sectors, the survey shows that the soaring energy prices will cause significant concern for 83% of hotel and catering companies, as well as 68% of industrial companies. More data provided by the survey is that for 36% of Catalan SMEs, the cost of energy exceeds 10% of their income. Pimec's director of studies, Moisès Bonal, has claimed that if the survey had been carried out more recently, the data would undoubtedly be worse, and has urged the administrations to take measures.

The president of Pimec's energy committee of energy of Pimec, Joan Vila, has warned that if exceptional measures are not adopted, companies could close due to the price of energy, which was already more expensive in Spain than in other European countries, he recalled. "We will suffer a lot," said Vila, who urged "exceptional measures". He recalled that since 2005 Pimec has been asking to unlink gas – and before that also coal – from the electricity market, because expensive technologies set the price while others have minimal operating costs. This means that there can be speculative operations with some energy sources, such as hydropower, he pointed out.

For this reason, the president of Pimec has called on Spain and the European authorities to modify the energy pricing system to avoid excessive rents and implement "fiscal measures" to capture part of the returns obtained by some electricity generators.

Price increases

The survey also analyses how rising energy prices have affected the annual supply contracts signed by many companies. Thus, more than half of SMEs consulted have received gas price offers for 2022 that imply increases of 200%, and of over 50% in the case of electricity. Cañete estimated the average profitability of Catalan SMEs at 6%, and warned that this kind of increases in the cost of gas and electricity could make them no longer viable. In fact, high energy prices are already causing stoppages of activity these days in some electro-intensive companies.

Pimec, which is part of the European employer organization SME United, has explained that this organisation has written to the President of the European Commission, Ursula Von der Leyen, to demand that gas be removed from the marginalist electricity pricing system. This system means that the final price of all the electricity negotiated in the market is set by the cost of the last megawatt to enter, usually combined cycle plants, which burn gas to produce electricity. The high price of natural gas, together with the cost of CO₂ emission rights, makes this the most expensive technology and the one that sets the price for all other technologies, such as nuclear, hydropower and renewables, which are not as costly to produce.

Thus, natural gas has a huge impact on the price of electricity, despite the fact that in 2021 only 17% of electricity was generated using this fuel in January 2022 it was 24% and in February 21%, according to data provided by Pimec). According to this employer association, natural gas may be responsible for 50% of the increase in electricity prices.

For the employer association, the high price of gas and the "inefficiencies" when calculating the price of electricity with a marginalist market have an annual cost per inhabitant of €1,660. A year ago this cost was €94, they point out. That is why Pimec is calling for radical measures to rapidly change the pool (market) and reduce dependence on the fuels most affected by the sanctions in Russia. The employer association is also calling on the Catalan and Spanish governments to take fiscal measures to capture some of the returns obtained by certain electricity generators, the so-called windfall profits, as proposed by the EU, to revert in the improvement of the price of energy. In addition, Pimec also calls for investment in renewables and realistic and flexible subsidies.