The government wants to protect itself from large increases in electricity prices amid the energy crisis. And the easiest way is to maintain the current gas ceiling mechanism applied in the Spanish market for the next few years, until the European Union agrees to revolutionize the current regulation of the wholesale electricity market.
The so-called ‘Iberian exemption’, the cap on the price of gas used for electricity generation applied in Spain and Portugal, expires on May 31, but the Spanish Administration wants to extend it until at least the end of 2018. 2024 and will seek permission from the European Commission to extend it.
Major electricity companies acknowledge that the government-designed mechanism has served to control the price of electricity in the wholesale market for the six months since it took effect on June 15. But companies warn such an intrusive measure makes sense only if it is strictly temporary. and according to sources from various companies, keeping him for two more years calls into question his exceptional nature.
The electricity sector claims that the Government is taking advantage of the request to Brussels to extend the validity of the Iberian exemption. changes in the way it operates, mainly reforms being deployed in who pays the additional cost This means activating a cap on the price of gas and will continue to gain weight if the mechanism is maintained until 2025.
And what the power companies denounce is that The “distortion” implied by the Iberian exception for the functioning of the retail light market, due to the additional cost imposed on them given that the millionaire cost of compensating gas plants that charge the cost of generating electricity despite the cap is paid by customers who entitle them to a fixed price and now enter into a variable rate contract.
Fixed prices turned into volatile
The Iberian exception means imposing a maximum price (on average 48.8 Euros per MWh for one year) on the gas used to generate electricity in order to lower the price of the electricity market as a whole. pollutes the rest of the production technologies. However, the electricity produced by the plants continues to be paid at its real price so that they do not produce at a loss, thus receiving some form of compensation paid by customers who benefit from the general decline in the wholesale market price.
From the day the mechanism came into effect, the extra cost of gas power plants began to be paid by customers at a regulated rate. And gradually, this compensation was also taken over by free market clients when updating the terms of their rates when renewing or changing their contracts. exactly this Transferring a variable extra cost (depending on the price of gas and how much gas plants are used) to customers with agreed rates on a fixed price what the big power companies see as an unacceptable trade distortion and pressure the Government to eliminate it.
The electricity sector is still clearly not soaking up itself with a clear proposition on who will cover the additional cost of gas power plants if consumers benefiting from the drop in market prices do not, but other European countries point to it. They claimed that they were considering introducing similar mechanisms and that the excess cost could be transferred to the state budget or to the entire electricity system.
Keep the upper limit at 45 Euros
The mechanism, agreed between the Spanish and Portuguese governments and Brussels, envisages a cap of €40 per megawatt hour (MWh) for the first six months, and gradual increases of €5 per month until 2012. . It ends at 70 euros per MWh. The limit price applied from 1 January is 45 euros.
The government’s aim is not only to get Brussels to extend the validity of the Iberian exemption, but also to allow the gas limit to be kept at a level similar to the current one. “The aim is to remain as it is today, “As low as possible, around 45 or 50 per MWh”pointed to Teresa Ribera, vice president and minister for Ecological Transition this week.
The wholesale electricity markets in Europe operate on marginalist systems; this means that the last production supply that satisfies the demand is the supply that determines the price of the others. The last offer is, in most cases, the one made by gas power plants that boosted the rapidly rising international prices during the energy crisis, raising the price of all electricity. rising costs of natural gas.
Spain and Portugal impose maximum prices on offers that only combined cycle power plants (that burn gas to produce electricity) can submit in the electricity market. With this, the electricity market as a whole decouples from the gas price and includes its price. According to government calculations, Spanish consumers benefited from net savings of more than 4,500m euros Thanks to the lowest price marked by the market thanks to the gas cap.
Invoice Changes
The government forced the electricity companies bring changes in the design of the electricity bill avoiding biased information from utilities about the impact of the ‘Iberian exception’ on the final price of electricity, after identifying data that it considers not very transparent on the impact of the cap on gas.
And electricity companies in the free market depend on the receipts they send to their customers, the cost of their usual consumption, as well as the extra cost some have to pay to compensate for gas plants by the Iberian exception to prevent them from producing at a loss. And they did it with different terminologies, even talking about this compensation as a tax.
Among other innovations, the Government now obliges companies to provide this data in a unified terminology, as well as information on what the electricity market price would have been if the Iberian mechanism had not been implemented, and hence the savings incurred by all customers.