After the exorbitant historical peaks recorded during the worst period energy crisis, Now electricity prices They are going under with increasing frequency and setting new records, but downward because they are cheap. Wholesale electricity market – electricity and traders they buy and sell energy to be consumed the next day; The number of watches marking zero euro prices has been increasing rapidly for months.
This Sunday the electricity market completed 16 consecutive hours at zero euro levels. And so far this year such a total price collapse has occurred for a total of 85 hours, with hundreds of hours below one euro. A situation that arises due to the increase in electricity production renewable energy -cheaper- but they pose a serious problem for the green companies themselves because they cannot cover the costs with demolition prices.
“Renewable energy sources have always played our role as a price reducer. It has always been our argument to defend these technologies. But zero-euro prices are not good news. “Low prices are good, but production costs need to be covered,” he said. José María González Moya, general manager of the Association of Renewable Energy Companies (APPA Renovables)in his meeting with the press.
In fact, according to APPA estimates, the production of renewable energies made it possible to reduce the electricity market price by 43.10 euros per MWh last year. Without their contribution, the average price of the wholesale electricity market would have been 210.62 euro/MWh instead of the recorded 167.52 euro/MWh. “Historically, renewable energy sources have enabled savings by reducing market prices. Now this has become a problem for us. “If we continue like this, some technologies will not reach a sufficient level of profitability.”
Also known as the electricity market swimming pool, sets prices through a marginal system that sets the price of others for the latest, most expensive technology needed to meet demand at all hours of the day. Some so-called marginal production technologies ( renewable energy, nuclear and hydropower) enters the market at a zero price, so when the production of these energies is sufficient to cover the entire planned consumption, the price remains at zero euros. And that’s what’s been happening more and more over the past year.
Investment stall risk
The renewable energy industry is warning about the impact this undermining of electricity prices could have on business. Cannibalization, because, the companies warn, it is precisely the expansion of renewable energy sources that endangers the profitability of existing and future green installations due to the decline in electricity prices and may result in a halt to investments in new developments.
“The industry will blow up if nothing is done. This industry is used to sudden decisions. If this situation continues, investments will slow down or disappear. “The next one or the next one will come, but if we don’t act it will come,” warned González Moya. APPA Renovables asks the Government to sharply increase the electrification of the economy in order to increase demand (reduce oil and gas consumption) in order to avoid the feared collapse, electricity consumption being replaced by renewable generation. Expansion of storage batteries is encouraged (to avoid wasting energy in times of low demand and high production).
“We are going wrong and late”
The danger of investment stagnation will make it even more difficult to achieve the renewable energy expansion targets set by the Government for the end of this decade. draft again National Integrated Energy and Climate Plan (PNIEC) Sent to the European Commission by the executive, it increased the target of widespread use of renewable energy in final energy use from 42 to 48 percent by 2030, and the target of renewable production from 74 percent to 81 percent in all electricity production.
However, in its study on the macroeconomic impact of renewable energies, APPA warns that these targets are unattainable at the current pace of expansion and will remain at 29.8% and 57.1% of final energy use by the end of the decade. Electricity production if the current distribution trend is maintained.
“We’re going wrong and we’re running late,” APPA’s chief executive said. Just under 9,000 megawatts (MW) of new green energy were installed in Spain last year, a record for the implementation of new renewable installations and the expansion of self-consumption. To achieve the targets set by the government, 11,000 MW of new MW will need to be continuously implemented every year until 2030.
More cuts and more ‘Iberian exceptions’?
Since the beginning of the energy crisis, the Government has been establishing a consumer protection shield to cushion the impact of rising prices, with most measures ending on 31 December. The continuity of some of these measures (reduction of VAT on electricity and gas, expansion of social bonuses…) depends entirely on the decision of the Spanish Administration. On the other hand, other regulations currently in force, especially those that directly affect the functioning of energy markets, can only be expanded with the express permission of the European Union, if the Twenty-Seven agrees to reform and expand part of the EU. The temporary framework for the Ukrainian war will end at the end of the year.
Spain has been openly advocating an extension of the community framework beyond this year, and is in fact committed to a permanent extension “until necessary” while waiting for energy markets to normalise. Among the measures currently implemented in Spain, which will automatically fall if the EU does not extend the current crisis framework, are those that serve to prevent large electricity increases by establishing a price ceiling.
On the one hand, the application of a maximum price of 67 euros per megawatt hour (MWh) in contracts for the sale of electricity produced from nuclear, hydroelectric and renewable sources, in order to prevent excessive profits from taking advantage of the crisis. On the other hand, there is also a so-called Iberian exceptionA mechanism that limits the price of gas used to produce electricity in order to reduce the final price of electricity.
The renewable energy sector is critical of what they see as the arbitrary application of price caps and warns of the problem this represents for companies who do not yet know whether the measures will continue to be in place after two months. APPA president Santiago Gómez emphasized that when the price of the electricity market falls, “While there is no price floor that would prevent a decline in revenue, there cannot be an intervention at an arbitrary and subjective level to establish cost reductions for some technologies.” “We need certainty. It is debatable whether to apply the Iberia exception or the cost reduction, but not knowing whether they will be maintained is the worst thing that can happen to us. “Companies cannot design their strategies.”
Macroeconomic impact
Renewable energy consolidated its growth in a year in the context of a record number of new power plant installations with 8,919 MW of new power and high prices in the energy markets. A combination of variables that increases the contribution of the renewable sector to the Gross Domestic Product (GDP) to 19 billion 484 million euros, 1.65% of economic activity and up to 130 thousand jobs – 80,322 direct jobs and 50,493 through a knock-on effect.
Record prices in energy markets have triggered savings made possible by renewable energy sources by avoiding imports of fossil raw materials (especially oil and natural gas); This saving almost doubled from 8 billion 613 million euros in 2021 to 15 billion 230 million euros in 2022. (electricity production, thermal uses and biofuels) also prevented the emission of 55.8 million tons of CO2 into the atmosphere; This meant savings equivalent to €4,510 million for the Spanish economy.