Power cost of EUR 600 vs EUR 1,800 per tonne: How electricity prices are reshaping Europe’s aluminium industry

How much does it really cost to produce aluminium in Europe, and can the region’s smelters compete with producers in the US and China? Beyond electricity prices, the economics of primary and recycled aluminium, industrial electrification and changing automotive demand are shaping the future of Europe’s aluminium industry.

In this exclusive interview with AL Circle, Dr Martin Iffert, Founder and CEO of Martin Iffert Consulting, examines these challenges, discussing smelter economics, recycling competitiveness and the outlook for Europe’s 2040 electrification vision. He also shares his views on Germany’s production landscape and the investments needed to improve productivity and strengthen the aluminium value chain.

Dr Iffert brings over 30 years of industry experience. He served as CEO of TRIMET Aluminium SE from 2011 to 2019, leading four smelters and restarting capacities in Germany and France. He also served as honorary President of the German non-ferrous metals association from 2016 to 2019 and will serve as TMS Light Metals Editor in 2028.

AL Circle: The International Energy Agency reported that in 2025, electricity prices for energy-intensive industries in the EU averaged more than twice US levels and nearly 50 per cent above Chinese levels.  With electricity accounting for 30-45 per cent of primary aluminium production costs, how much does this price gap add to the cost of producing a tonne of aluminium in Europe? 

Dr Martin Iffert: The electricity price alone does not determine a smelter’s competitiveness. What matters is the electricity cost per tonne of aluminium relative to the LME aluminium price. If aluminium and electricity prices move together, a smelter can remain viable even at higher power rates. 

At total AC plant consumption of 15 MWh per tonne (fully integrated smelters with anode plant, VAP (value-added products) casthouse, etc. typically have 10 per cent consumption on top of the potline DC consumption of 13.5 MWh/t) and an effective all-in electricity price of USD 40/MWh, electricity costs USD 600 per tonne. This represents 20 per cent of an LME price of USD 3,000, an excellent position, but 40 per cent at USD 1,500, potentially around break-even. In my experience, a ratio around 30 per cent generally provides a solid position, depending on other costs and product premiums. 

European averages require care. Not every EU country has primary aluminium production, and electricity prices differ substantially between locations. Norway illustrates this clearly: across its five bidding zones, current quotations for delivery in 2030 range from approximately EUR 35/MWh in the north to EUR 115/MWh in the south. A national average would conceal a difference that fundamentally changes smelter economics. 

For European producers, indirect carbon-cost compensation is particularly important. ETS car boncarbon costs enter market electricity prices, including those paid by consumers purchasing low carbonlow-carbon power. Compensation reduces this burden for eligible producers, although actual relief and other electricity charges must be assessed for each plant. Where the so-called super-cap applies, smelters can recover around 90–95 per cent of their indirect carbon costs, or even more. 

Germany illustrates how quickly the position can change. Electricity for delivery in 2027 traded around EUR 80/MWh early in 2026 and rose to approximately EUR 160/MWh in the fourth quarter. The lower level was not exceptional: it was close to the average of the past three years. Assuming compensation of EUR 40/MWh in both cases, the remaining energy cost rises from EUR 40 to EUR 120/MWh. At 15 MWh per tonne, that means EUR 600 versus EUR 1,800 per tonne, before other electricity charges. A competitive position available early in the year can therefore become commercially unsustainable for a producer that remained unhedged. 

Procurement timing is consequently critical. Volatility can be manageable if attractive windows recur and producers secure sufficient power for several delivery years. A favourable window every other year may support a rolling procurement strategy, provided market liquidity and credit capacity allow it. Missing such a window can threaten a smelter’s viability. Coordinating power purchases with aluminium sales and currency hedging is essential to protect the margin.

Seasonal and intraday price movements, including differences between windy and low-wind periods, create further opportunities for smelters that master flexibility. Depending on plant capabilities and market arrangements, flexibility can reduce effective power costs by approximately 10–20 per cent. LME-linked power contracts provide another way to align electricity costs with metal revenues. 

Showcase your brand, aluminium recycling initiatives and sustainability vision in our upcoming magazine: Sustainability & Recycling: Aluminium’s Commitment 2026.

AL Circle: What is the actual energy cost per tonne of recycled aluminium compared with primary aluminium in Europe, particularly in recycling-focused markets such as Germany and Italy?  

Dr Martin Iffert: Primary aluminium production and recycling have fundamentally different energy requirements. Primary production relies on electricity-intensive electrolysis. Conventional recycling mainly uses natural gas to remelt existing metal and typically requires 10–20 times less process energy. 

Germany’s primary aluminium industry was built for decades on competitively priced electricity, particularly from lignite generation. Industrial policy and electricity-cost relief have helped preserve part of this capacity as the energy system has changed. Recycling has a much lower energy requirement, although its economics depend heavily on the available scrap and the alloy being produced. 

For conventional gas-fired recycling, I would assume approximately 1 MWh of natural gas per tonne of recycled aluminium. Consumption varies with furnace technology, scrap quality, pre-treatment and product requirements. At EUR 40/MWh for natural gas, roughly the average of the past three years and a level that could be secured on forward curves, this means approximately EUR 40 per tonne, before carbon costs and auxiliary electricity. 

Primary production at total AC plant consumption of 15 MWh per tonne and a comparable structural electricity price of EUR 80/MWh would incur EUR 1,200 per tonne before compensation. An illustrative effective electricity price of EUR 40/MWh after compensation would reduce this to EUR 600 per tonne. The 2022 and late-2026 price spikes were exceptions, not the norm for the years in between. 

Germany and Italy follow the same basic physics. Differences in actual energy costs reflect equipment, feedstock and product mix, procurement contracts, network charges and available relief. 

Recycling competitiveness nevertheless extends beyond energy. Scrap carries the value of its recoverable aluminium and alloying elements. The recycler earns a conversion spread between the yield-adjusted scrap cost and the selling price of the specified alloy. This must cover pro cessingprocessing costs and provide a return on investment.

In my experience, differences in environmental standards and enforcement can be the strong eststrongest driver of international processing-cost differences, particularly for contaminated scrap and dross. Comprehensive residue recovery and cheaper disposal routes have substantially different economics. 

AL Circle: Europe’s proposed 2040 “electro-continent” vision aims to accelerate electrification. Can it support a viable aluminium industry without electricity prices falling towards EUR 30–40/MWh?  How does this target compare with the electricity costs required to compete internationally? 

Dr Martin Iffert: Electrification can support a viable European aluminium industry, provided it delivers internationally competitive power. Primary aluminium electrolysis is already electrical. Its challenge is securing reliable, low-carbon electricity at a cost that leaves an adequate margin against the aluminium price. 

EUR 30–40/MWh is a useful reference for effective electricity costs, but it is not a universal break-even threshold. As discussed earlier, competitiveness depends on the electricity-cost-to LMEelectricity-cost-to-LME ratio, plant efficiency, product premiums and investment requirements. An existing smelter and a new project also face different economic hurdles. Higher market prices can remain viable where carbon-cost compensation, other relief and flexibility bring the effective cost into a competitive range. 

An electrification strategy must therefore address delivered costs. Low wind or solar generation costs are only the starting point. Firming, network charges and the allocation of system costs determine what an industrial consumer ultimately pays. 

Aluminium smelters can help balance an electricity system with increasing wind and solar generation. They can increase consumption when electricity is abundant and reduce it when supply is scarce. Sustaining these adjustments over several hours requires control of heat losses, cell stability and power supply so that the electrolysis process remains stable. This allows a smelter to shift electricity consumption over time while maintaining its planned metal output across the operating cycle. Electricity markets and network tariffs should reward this contribution through lower effective power costs and payments for balancing services. 

For recycling and downstream thermal processes, electrification presents a different investment decision. Electric equipment must compete with gas on useful heat delivered, taking account of efficiency, carbon costs and capital expenditure. 

Europe’s electrification ambition will strengthen aluminium production if it connects industrial demand with competitive generation, enables long-term contracts and rewards flexibility. Increasing electricity consumption alone will not establish competitiveness.

AL Circle: Which European countries will lead electrification? Will France, Greece, Romania and Slovakia need it more than Germany and Italy, given their primary aluminium focus versus the latter’s stronger recycling focus? 

Dr Martin Iffert: I would distinguish between securing competitive electricity for primary production and electrifying recycling and downstream processes. 

For primary aluminium production, competitive electricity is fundamental to viability. Electrolysis is already electrical; the priority is reliable supply under contracts that support operation and investment. France benefits from its nuclear strategy and support for industrial electricity consumers. The Nordic countries have substantial hydropower resources, nuclear generation in Sweden and Finland, and considerable potential for onshore wind development. These provide a strong basis for competitive supply, although regional prices, grid capacity and individual contracts remain decisive. Primary producers in Germany, Greece, France, Spain, Romania and Slovakia face the same requirement: securing electricity at a cost that supports internationally competitive aluminium production. 

Conventional recycling has different economics. It is generally a low-margin business with relatively low barriers to entry. Energy contributes to processing costs, but its much lower consumption makes electricity or gas prices less decisive than in primary production. 

Transport also provides some protection for local recycling. Even an illustrative European energy-cost disadvantage of USD 30–50 per tonne may be offset by a similar cost of transporting material over longer distances. Scrap generally favours nearby outlets, provided local buyers offer competitive prices and can process the available quality. High metal-value differences or unequal processing conditions can nevertheless draw it overseas. During price spikes such as the current one, however, this natural protection erodes. 

For recyclers in Germany and Italy, labour costs and environmental obligations can therefore matter more than energy-price differences. Automation, better process control and AI can improve productivity, recovery and consistency. Producing more demanding alloys from difficult scrap also creates opportunities beyond conventional remelting. 

Regulation must support this investment. European environmental requirements and scrap export measures should work together so that higher domestic standards do not simply en courageencourage material to move to cheaper processing routes abroad. 

The countries that lead will combine competitive energy with productive plants, suitable technology and consistent industrial policy. The distinction between primary production and recycling alone does not provide a useful ranking.

AL Circle: German aluminium semi-finished output fell by 2 per cent year on year to just under 1.15 million tonnes in H1 2026, while recycling production declined by around 3 per cent in Q1. To what extent have high energy costs, weak demand and import competition contributed to these declines, and what are the implications for production, capacity utilisation and investment across the industry? 

Dr Martin Iffert: The declines reflect a combination of weak demand, pressure on competitiveness and structural change. The production figures alone do not allow us to assign a percentage to each cause, and their importance differs across the aluminium value chain. 

Weak demand reduces orders and capacity utilisation. Fixed costs are then spread over fewer tonnes, increasing unit costs and putting further pressure on margins. Import competition limits producers’ ability to recover higher costs through selling prices. 

Energy remains fundamental for primary smelters. For semi-finished producers, its importance depends on the process and product mix. In conventional recycling, I would place greater emphasis on feedstock availability, metal recovery, labour and environmental costs. Its relatively low energy consumption and the cost of transporting material provide some protection against international energy-price differences. 

The automotive transition adds a structural challenge. Engine blocks and conventional trans missiontransmission components have been important outlets for secondary casting alloys made from mixed scrap. As battery-electric vehicles gain market share, this demand changes. The issue is therefore both production volume and the alloy qualities customers require. 

Investment must follow that change. Conventional downgrade recycling faces less secure out letsoutets, while better sorting and preparation can qualify suitable scrap for wrought alloys and demanding foundry applications. Technologies such as LIBS gain value where improved separation reduces primary-metal dilution and enables a higher-value product. 

Automotive manufacturers’ increased use of recycled aluminium is welcome, but recovering the required qualities from end-of-life products is a different technical task from recirculating clean production scrap. 

For producers, the investment priority is productivity, automation and the ability to serve these changing markets. Additional furnace or processing capacity is justified where secure feedstock  feedstock and qualified customer demand support acceptable utilisation and returns. 

Follow Part 2 of the interview for insights into Germany’s die-casting industry, CBAM and the future of aluminium decarbonisation in Europe.