Last week, the European Commission gave the green light. “Iberian exception” negotiated by Spain and Portugal to set gas price cap this allows lower the bill electric, 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 15, and will remain until May 31 of next year, if there are no shocks.
How does the mechanism work?
Turning off the gas used to generate electricity generation technologies as now, it is charged at the actual price of gas, so users, overpayment who has the most technology and will only have to make up for it plants that actually use gas (combined cycles and coal plants). By calculations The Spanish and Portuguese governments have determined that the real price of gas in the first month the mechanism is in effect. an average of 96 euro MWh, average electricity price on the wholesale market it will be 110.63 Euro MWh (compared to 213 Euro MWh without an upper limit). This should be added to the figure the difference between the real price of gas and the limit (to compensate for combined cycles or coal power plants) estimated at 73 euro MWh, required for this discount 7.12 Euro MWh comes from the ‘sale’ of electricity to France. Thus, ultimately consumers €176.60 MWhalmost 40 euros less MWh without an upper limit.
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. Teresa Ribera, the third vice-president and minister for Ecological Transition, explained to the media that Monday is a holiday in Portugal and therefore will be Tuesday when the border starts operating. 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 consumers local they will enjoy an average price reduction of about 15%; while for Industry The discount will be between 18% and 20%. Initially, the Manager suggested a 30% discount because it was intended to be included in the plans. compensation to all consumers free market as well as regulated markets, from the beginning, but in the end it will not be. It is possible that the regulated bill will henceforth become more competitive than many free market proposals.
Who will benefit from the discount?
37% of spanish houses Has a PVPC rate (Voluntary Price for Small Consumers) and 70% industrial consumers They go directly to the market to buy energy. These will be the main has benefitedSince they are the most affected by the prices of the last months, they will compensate from the beginning the difference between the gas ceiling and the real price. users Free market with fixed price contracts before April 26 Companies will be exempted this year if they do not update these prices while the mechanism is in progress. These subsequent fixed price contracts will need to include compensation. Over the entire period, users will pay a compensation of 5,500 million Euros, revenue from electricity ‘sales’ to France will receive an additional 800 million Euros, corresponding to a total of 6,300 million Euros estimated by the European Commission. Vice President and Minister for Ecological Transformation, Theresa Riveracompanies are now confident that since they will have a lower electricity market reference price, the price of fixed contracts will decrease.
Why one year?
The bulk of the measure lasts six months to provide “temporary relief” for electricity consumers in summer and winter, and “the PVPC ratio is adjusted to reduce exposure. houses defenseless 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). The remaining six months are used for the gradual removal of the upper limit up to 70 Euro MWh in the last month, with prices converging to expected within a year.
Why does gas mark 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 a conclusion.