Heatwave and Putin’s new pulse ruin the premiere of the Government’s plan to lower the light

The government is trying to justify its frustration by emphasizing that all the factors that may have prevented the initiation of its measure to lower the electricity bill have emerged at the same time, and high expectation problem (By the way, it’s been inflated by the Admin for weeks). The long-awaited premiere last Tuesday to the top gas—Spain and Portugal’s stellar plan to dim the light, with which both countries fought for weeks in Brussels until they got the definitive ‘okay’—had disappointing results.

A start with significant reductions in electricity prices was expected thanks to the implementation of the so-called ‘Iberian exception’. Spain and Portugal to impose a maximum price on gas for a yearUsed to generate electricity (average 48 Euros per megawatt hour, MWh) in order to lower the price of the entire wholesale electricity market and prevent the high gas price from polluting the money paid for electricity produced for the rest. It is one of the technologies.

But throughout the week, the final electricity price that 10 million households with a regulated electricity fee (Voluntary Price for the Small Consumer, PVPC) and industries that buy energy directly in the electricity market have to pay has spiked. The opposite of what is expected.

It is understood from the electricity sector itself that the Government, which sold the gas cap with great fanfare, was unlucky and the premiere was ruined by external and cyclical factors. “Everything that could go wrong went wrong. The heatwave is causing Putin to cut off gas flow to Europe and prices skyrocket again. All in the same week the gas cap starts,” says the industry director.

Come down… but don’t come down

During this week, Electricity demand increased rapidly due to air conditioning As a result of the heat wave that hit Spain (but also due to explosive electricity exports to France), the contribution of renewable power plant generation has decreased: the lack of wind has caused wind power generation and the haze effect has damaged photovoltaic power plants and especially thermosolar power plants due to low insolation.

With more consumption and less renewable sources, the production of gas power plants has risen to record levels to meet all required electricity generation. And that’s just when the gas price skyrocketed due to Vladimir Putin’s new pulse in Europe (this week Russian giant Gazprom cuts gas supplies to major European economies like Germany, France or Italy, and with that, gas prices have skyrocketed) and when the system designed by the Governments of Spain and Portugal compels gas plants to pay compensation to cover their actual production costs. Everything that could go wrong went wrong.

during this week Demand for natural gas to generate electricity reaches two consecutive historic maximums (Up to 770 gigawatt hours are marked this Thursday) and dusts the previous record of June 2008, according to records from the gas system’s operator, Enagás. In fact, in a few days this week, power plants that use gas to generate electricity, combined cycles, concentrated more than 40% of all national electricity production, according to data from Red Eléctrica. some numbers, Sedigás employers’ association to advocate for the importance of natural gas to guarantee electricity supply security at a time when renewables are not producing enough.

Since the implementation of the gas cap, the official price of the wholesale electricity market, where producers, marketers and traders buy and sell some of the energy they will consume the next day, has actually fallen. Prior to the implementation of the new mechanism, the wholesale market set a price of 214 euros per megawatt hour (MWh). With the introduction of the gas cap, the official price of electricity consumed in the following days has ranged from 165 to 177 euros per MWh from Tuesday (this Saturday, when demand was lower, the price of energy to be consumed fell to 146 euros per MWh).

The problem is that even though the price of the wholesale electricity market has fallen due to the gas ceiling, The amount that millions of families and companies will finally pay at a market-dependent rate continues to grow with the addition of compensation to be paid to gas plants with the new mechanism (higher than expected due to the enormous production of the plants and the exorbitant rise in gas prices on the international market). A Compensation for electricity companies with gas power plants fluctuating between 59 and 88 Euros per MWh nowadaysthis is what adds to the price set by the wholesale market and keeps the light from falling.

Compensation for gas plants with an estimated annual cost of 6,300 million is paid only by Spanish consumers who benefit from the mechanism, currently about a third of all domestic and industrial customers (industrial customers with a PVPC rate and no fixed price) (contracts to market), contracts within the year contracts to which, when reviewed, customers with free market rates will be added. The adjustment is not paid for by French customers, although they benefit from the reduction in the official pool price and the interconnection capacity between the two countries has triggered the maximum level of electricity imports since the abolition of the gas cap.

Without a hat, I’d go higher

Sources from the Ministry of Ecological Transition, commanded by Vice President Teresa Ribera, insisted during the week that the current electricity price should be compared to a much higher price, not the Monday before the measure was implemented. saved if the gas cap is not activated.

According to government calculations, the wholesale market price would point to even higher prices every day this week than those that are finally registered with the gas cap mechanism (even if it adds the cost of adjustment to compensate for the gas installations). Without the petrol ceiling, final prices would range from 240 to 300 euros per MWh. according to government estimates.

“A downward delay indicating activity [del tope al gas] to lower the electricity price, limit the extraordinary profits of electricity companies and act as a firewall against high gas prices,” the ministry said, highlighting its sources. In addition, the Government points out that the electricity markets of the major European economies throughout the week pointed to much higher prices than in Spain. “In a situation as bad as the current situation, the mechanism is proving useful in extreme situations,” they say from the government.

Major electricity companies emphasize that the increase in gas prices will continue to dilute the effects of the measure. Enabled by the government, but they acknowledge that without the gas cap, the price of the wholesale market will be even higher “In any case, this is a temporary situation, so under these conditions the cost reduction results are expected to be greater”, point to point.and Aelec, the employers’ association that brings together Iberdrola, Endesa and EDP. “The problem remains the rise in gas prices, and we will not be far from the impact of gas on electricity prices until we reduce our dependence on gas with more renewable energies”.

A long-term measure

“We have to give it more time to know the effectiveness of the gas cap mechanism. An evaluation cannot be made only with the results of the few days he worked.” Francisco Valverde, Menta Energy consultant. “The measure is still in its infancy. Although less than expected, the reality is that it prevents the light from rising any further.”

Despite initial disappointment, The government claims that the Iberian mechanism will serve a reduction of between 15% and 20% next year. -The validity of the gas upper limit is planned until May 31, 2023- The 10 million households included in the regulated tariff and the invoice paid by 70% of the industrial companies that go to the wholesale market to buy the energy they need. According to the Executive, they argue that the effect of the measure is partially diluted by cyclical factors in international markets and electricity demand, which will not be sustainable during the period of its implementation.

“Calculations show that the initial impact of the measure is positive but modest”, Foundation for Applied Economics Research (Fedea), This suggests that the government’s goals to reduce the electricity bill may be excessive. Once some circumstantial factors influence the effectiveness of the bill, “even though the originally planned 15% or 20% reduction of the bill may not be achieved, the mechanism can be expected to produce larger discounts than was initially observed”. measurement. However, it is also warned by the ‘think tank’: The impact of the sharp increase in electricity exports to France on the cost of the measure was probably underestimated. without assuming compensation for combined cycles.

slide the doubts

in the middle of the discussion disappointing results of the first weekEven e-implementation of the measure was launched by Vice President Teresa Ribera Announcement to electricity companies warned that the performance of electricity companies in the wholesale market will be closely monitored. The executive is warned that the National Markets and Competition Commission (CNMC) is on the alert and overseeing the functioning of the market.

Ribera warns energy companiesand will carry out a “comprehensive oversight” their offers in the wholesale market known as the ‘pool’, to ensure that there are no behaviors that would “disrupt” the proper functioning of groups.

“This is something Competition has always been watching closely, and we will remind it to closely monitor the behavior of yesterday and the next few days,” the vice president said. he underlined during the week that “ten years later an electricity company was accused of bad practices in the market”.. A reference to the National Supreme Court’s decision to prosecute Iberdrola for alleged price manipulation through bids put on the market for the production of several hydroelectric power plants in the winter of 2013.

Source: Informacion


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