HE electricity market discarded last year record prices amid a crisis and exposed to extreme volatility exacerbated by the economic impact. Russian military invasion of Ukraine. For months there were exorbitant increases and historical maximum prices that were unimaginable until then. over 500 euros per megawatt hour (MWh) on the market per day.
This electricity prices After rapidly rising peaks in recent months, they have finally managed to moderate. The current decline in the price of natural gas, the control of energy demand and special measures to alleviate The impact of increases in households and companies (tax cuts, ceilings, cuts…) made it possible to reduce the extreme volatility during the worst moments of the crisis, with the electricity price currently hovering between 60% and 70%. . % below last year’s levels
And in fact, some days – more and more days – the drop in prices reaches extreme proportions and triggers how many times the price drops to zero euros. The wholesale market, where electricity companies and traders buy and sell the energy to be consumed the next day, sets different prices for every hour of the day, and this year the hours when this price is zero are increasing exponentially.
Only this year, the electricity market, also known as the pool so far, set a price of zero euros in a total of 52 hours According to the records of the Iberian Energy Market Operator (OMIE) (plus 29 more at a price of a few cents under 1 euro). During 2022, zero euros were touched for only three hours, and it was also dawn on the last day of the year, 31 December.
Renewable boom, price drop
The electricity market sets prices on a marginalist system, which means that the newest and most expensive technology needed to meet demand determines the price of others. Some generation technologies called inframarginal (renewable energy, nuclear and hydropower) enter the market at zero price, so when the production of these energies is sufficient to meet the full expected consumption, the price remains at this zero euro. And that’s what happened in those fifty hours this year.
The combination of low demand for renewable energies in Spain and the increasing weight of renewable energies in the electricity generation mix is causing these events to recur more frequently. LZero-priced watches are concentrated on weekends and holidays.: Of the 52 hours with a zero euro pool, 35 were recorded on Sunday, two on Saturday and 15 on national holidays.
“The price of the electricity market depends on more or less consumption and the weight that marginal energies always have. Now there is a drop in demand, and if there are very sunny and very windy days, prices go down, go down a lot and even reach zero,” he explains. Francisco Valverde, advisor to Menta Energia.
from night to day
There are also radical changes in the electricity market during the hours when the lowest prices of the day are recorded. Traditionally the lowest prices were concentrated at night due to lower business activity and lower energy consumption, but are now increasingly recorded during the central hours of the day due to the effect this has on price formation. increasing production of photovoltaic solar power plants and the explosion in self-consumption.
“Due to the increasing weight of photovoltaic generation, the profile of the price curve is changing. While the excess of electricity is now concentrated in solar radiation for hours, at night is the time when gas plants are used the most and prices increase,” he emphasizes. Juan Antonio Martínez, analyst at Grupo ASE. “Historically, zero prices were only generated by wind power, sometimes with a lot of wind, but now it’s photovoltaics that takes center stage,” Valverde sums up.
The hours when prices drop also vary according to the season of the year. “The energy that can cause the price to drop so much in the winter is wind power, and it causes prices to drop at night. “There’s less wind and more photovoltaics in the summer, and solar energy impacts the price, so it drops at central hours,” he says. Antonio Delgado Rigal, CEO of Aleasoft Energy Forecasting consulting company. In fact, the 13 zero-price hours recorded last January are mostly concentrated in the early morning hours, while in April and May they only occur during the central hours of the day, when solar radiation is highest.
From the electricity sector and consultants, zero-priced hours are cited as a problem (because if the market sets demolition prices frequently, it may deter some investment in new renewable energies) and as an alarm signal about some shortcomings in the system (sufficient storage capacity given (batteries) or European recovery). If there were more interconnections with the rest, some of the production could be saved or the day could be freed up with less production, thus avoiding sudden price fluctuations).
Electricity for zero euros is NOT free electricity
The fact that the electricity market has fallen to zero euros does not mean that consumers have free electricity on their bills. On the one hand, because the evolution of the wholesale electricity market has only had a direct impact on the bills of around 9 million customers who are subject to a regulated tariff called price-on-demand (PVPC) for small consumers. On the other hand, the energy price is only one of the components that make up the bill for all customers, both those with regulated tariffs and the majority (whose price is freely determined by electricity) who choose the free market price. companies).
In addition to the energy component, the bill includes certain taxes (currently being reduced or temporarily suspended by the Government as part of the social shield against the crisis); Regulated fees set by the government that are used to pay for renewable energy sources, extra costs of non-peninsula or electricity system debt; and access tolls set by the National Markets and Competition Commission (CNMC) and used to finance the costs of transmission and distribution networks. The energy portion of the price may be zero, but customers must continue to pay for other components.