The European Commission gave the green light this Thursday. “Iberian exception” negotiated by Spain Y Portugal to set cap price gas this allows lower the electricity bill, after two months of deliberation and three weeks after its approval by the Council of Ministers. This Thursday, the Congress of Deputies is discussing the measure, which will begin to be noticed from Wednesday, June 15th, and which, if there is no shock, will continue until May 31 of next year.
How does the mechanism work?
According to the accounts of the Spanish and Portuguese governments sent to Brussels, first month With a petrol cap of 40 Euro MWh and an average real price of around 96 Euro MWh, average electricity price in the wholesale market Instead of 213 euro MWh, it would average 110.63 euro MWh. But this will not be the final price consumers pay, but a compensation (the difference between the actual price of gas and the limit set for paying gas utilities). This compensation will be around 73 Euro MWh, but some (approximately 7.12 Euro MWh) is assumed together with the proceeds from the ‘sale’ of electricity to France. In this way, consumers will ultimately pay a total of about 176.60 Euros for MWh. €40 MWh less since they will pay without a ceiling avoid the overpayment that other technologies currently enjoy It is the generation that does not consume gas.
When will it start showing?
The first auction to be held with an upper limit of 40 Euro MWh will be held on Tuesday, June 14, so the first ‘limited’ electricity price will be MWh. Wednesday, June 15. Third Vice President and Minister for Ecological Transition, Theresa Rivera, in his statements to the press, announced that Monday is a holiday in Portugal, so it will be Tuesday when the border becomes operational. Its duration will be almost a year, Until 31 May 2023, but the upper limit of 40 euro MWh will only be maintained for the first six months. As of December, the upper limit will increase by five euros each month, up to 70 euros MWh at the end of the period. The price estimate for this raw material for 2023 is approx. 81.9 MWh On average, according to the Government’s 2022-2025 Stabilization Plan.
How low will the bill go?
this domestic consumers they will enjoy an average reduction in electricity prices of around 15%; while for industrial consumers Without coverage (direct market power purchases), the reduction is estimated to be around 18% to 20%, according to government estimates. Initially, the Government suggested that the reduction be 30%, as compensation was intended to be included from the start. all consumers, both those of the free market and the regulated market, but ultimately the reduction is estimated to be lower as it initially only affects consumers with PVPC ratios, industrial consumers and consumers with indexed ratios. Executive. As a result, the amended bill is most likely more competitive From now on, free market offers at prices directly accepted by consumers and marketers.
Who will benefit from the discount?
37% of spanish houses Has PVPC rate and 70% industrial consumers They go directly to the market to buy energy. These will be the main has benefited because they are the ones most affected by the high prices in recent months. If the contracted Fixed prices As the Third Vice President and Minister of Ecological Transition argued a few weeks ago, they will notice a reduction if they renew them within the year the mechanism is in place. Theresa Rivera because the reference price will be lower for marketers to set prices.
It was originally intended to accept free market consumers in the same way as regulated market consumers. compensation (approximately 6,300 million euros) for the difference between the gas ceiling and the actual price; but ultimately it will not be so, but compensation will be undertaken accordingly. Renewing their contract from April 26, 2022. In other words, energy buyers with fixed price contracts prior to this date are exempt from compensation, others are not. According to the European Commission document, they will pay compensation in the first month 41% of consumption in Spainthis share will gradually increase to 100%.
Why one year?
The measure was born to be a “temporary relief” for electricity consumers and “the PVPC ratio was adjusted to reduce exposure. vulnerable households and SMEs at market prices,” says the document European Commission Giving the green light to the ‘Iberian exception’. In this way, as stated in the royal decree shaping the gas cap before 1 October, new build for the rate to begin to apply “at the beginning of 2023”. The aim is to ensure that the proportion of the most vulnerable consumers depends only on the daily price, and also future prices. That is, it will be based on a basket of products from the futures markets – annual, quarterly and monthly – and the wholesale price of the daily market, which is currently determined by the price. According to the document, the reason why this reform has not been implemented at the moment is due to the low liquidity of the markets (both on the supply and demand side are intended to improve in the coming months) and the high volatility of prices. (it is intended to include this 40 Euro MWh cap over the next six months).
Why does gas show the price of electricity?
The Spanish market (like the rest of Europe) is governed by a marginal pricing system in which the most expensive source of production is the one that sets the price at a given time. Manufacturers supplying their electricity to the market, european algorithm according to their offers, ordered cheaper (such as renewable or nuclear generation) masks (typically coal and gas generators). This means that while the most expensive technologies will set the price, low-cost technologies will almost always work, except when there is very low demand. According to the operator of the Iberian energy market (OMIE), in 2021 hydroelectric power plants they marked the price of electricity 54.9% of the hours; renewable energy, cogeneration and waste power plants, 23.6%; gas facilities 15.9%; pumped hydraulics, 10.2% and coal, 1.5%. Gas has a “greater impact” on prices because hydroelectric power plants have “zero cost” but can “decide when to produce electricity”. opportunity cost“, the European Commission explains in its document. This opportunity cost is “mainly save money (or pump) water and use during peak electricity pricesIn this way, these facilities often offer prices “close to the prices of fossil fuel power plants”. Fossil fuel The price of power plants in Spain and Portugal is only limited number of hoursthey operating costs often affect electricity prices“, the text continues. And “given that coal no longer plays a significant role in the Spanish electricity mix and Portugal stops generating electricity with coal in 2021, gas has become the main determinant of prices in the electricity market”, comes to the conclusion.