Electricity price trends and policy measures in the Iberian market

The average electricity price edged up slightly by 0.23% from Wednesday to Thursday, settling at 187.27 euros per megawatt hour (MWh).

In practical terms, the pool price will stay at 187.27 euros per MWh for Thursday, just 0.43 euros higher than yesterday’s 186.84 euros, according to figures published by the Iberian Energy Market Operator (OMIE).

The minimum price for May 11 between 04:00 and 05:00 is expected to be around 161.11 euros per MWh, while the daily maximum, between 10:00 and 23:00, could reach 227.49 euros per MWh.

Compared with a year earlier, today’s average wholesale price is about 253% higher than the 53.04 euros per MWh registered on May 12, 2021.

Pool prices directly affect the regulated rate known as PVPC, which covers roughly 11 million households and serves as a benchmark for the remaining 17 million customers who shop on the free market. This relationship is why movements in the pool tend to influence the wider market landscape. According to CNMC, in 2021 about 1.25 million people switched from PVPC to a fixed-price free-market deal as part of shifts in the electricity market dynamics.

BILL IN APRIL 53% HIGHER THAN A YEAR AGO

Facua-Consumers in Action reports that the average household bill in April reached 124.90 euros, marking the fifth-highest monthly total on record and a rise of 53.2% from 81.55 euros in the same month last year. Yet the April bill also showed a 29.3% drop from March, when wholesale prices hit a record above 283 euros per MWh. In April 2021, the price per kilowatt hour averaged 17.04 cents, with 27.19% including indirect taxes.

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‘IBERIA EXCEPTION’

Spain and Portugal reached an agreement with the European Commission to cap gas prices, aiming for an average of 50 euros per MWh in wholesale Iberian electricity markets over the next twelve years. The gas reference price is set to begin near 40 euros per MWh and is intended to stabilize the market by averaging 50 euros per MWh for the next year. This target sits above the 30-euro ceiling proposed earlier by the two Iberian governments. (Source: EC agreement and national plan)

Additionally, on March 29 the government approved a national plan to mitigate Ukraine-related impacts, extending electricity bill tax relief until June 30 and expanding the electricity social tariff to reach 1.9 million beneficiary households. An accelerated update to the renewable energy, cogeneration, and waste fee regime (Recore) involved a 1.8 billion euro cut in electricity charges. The government also extended the gas relief to June 30 to curb extraordinary profits in the electricity market, broadening coverage to future and fixed-price energy contracts when prices exceed 67 euros per MWh.

What does it mean to separate electricity and gas prices?

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STABILITY IN THE MARKET

From February 24, when the invasion of Ukraine began, the wholesale price rose daily, peaking on March 8 at a historic 544.98 euros per MWh. Since March 12 the price has hovered around 250 euros, with a gradual decline in the final days to below 230 euros.

March stood out as the most expensive month on record, with the wholesale market averaging 283.30 euros per MWh and a noticeable spike above 239 euros per MWh compared to December 2021 levels.

Understanding the new electricity tariff

Wholesalers influence the PVPC, the regulator-backed tariff covering about 11 million Spanish consumers. PVPC remains a reference point for the 17 million customers who buy in the free market. Ongoing geopolitical tensions and gas supply concerns could push energy prices higher in the weeks ahead, particularly for gas. To ease the impact on households, the government extended the electricity tax relief until June 30. Price movements in Europe reflect higher international energy costs and greater CO2 emission rights prices, which feed into the market price in most hours.

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To soften price pressures on consumers, the government extended the electricity bill tax relief for the first four months. The broader rise in prices is attributed to higher global energy costs and the gas price dynamics in combined-cycle plants, along with CO2 emission rights. The situation is further complicated by ongoing geopolitical tensions that could affect gas imports to Europe.

2021: the most expensive year for electricity

The year closed with record highs in the wholesale market. The average daily price in January 2021 stood around 201.72 euros per MWh, about 235.3% higher than the previous year and 15.7% below December 2021 levels. The government extended the tax relief on electricity bills through April 30 to cushion households. In particular, VAT was reduced from 21% to 10%, and the special electricity tax dropped from 5.11% to 0.5% through the end of April. The production tax suspension for companies remains in effect only through March 31 for now.