Electricity prices are falling and breaking records for declines. In the wholesale electricity market, traders buy and sell energy for the next day, leading to very low prices across the week and a growing number of hours with zero euro prices.
The average daily price for electricity remained steady in the market that serves more than 8 million households with regulated tariffs. This Sunday, the market averaged about 5.03 euros per megawatt hour (MWh), according to provisional data from the Iberian Electricity Market Operator (OMIE). This level mirrors the week’s overall pace and sits above the 1.51 euros per MWh recorded on Saturday, the lowest in nearly three years.
Even more striking is that on Sunday there will be 16 consecutive hours at zero price (from 01:00 to 18:00), the most hours with zero pricing in nearly a decade. This marks a new record since February 8, 2014, when 17 hours were priced at zero. Energy experts note the trend as a sign of the wholesale market’s unusual behavior.
Only two days in Spain’s electricity history have seen a zero price throughout the day: March 29 and April 1, 2013, during Holy Week. Back then, wholesale-market dynamics did not directly translate to consumer bills because the regulated tariff pricing was determined through quarterly auctions that set the entire quarter’s price.
More renewables, cheaper energy
Often referred to as the electricity market pool, the pricing follows a marginal system. Prices for all hours are determined by the most expensive technology needed to meet demand at any given time. Sometimes renewable sources, along with nuclear and hydro, enter the market at zero or near-zero prices, so when these resources suffice to cover consumption, the overall price can stay very low.
That scenario has occurred for multiple hours this week. So far this year, zero euro prices have appeared in about 85 hours, with numerous instances where prices stayed below one euro. The combination of lower demand and a higher share of renewables in the generation mix is driving these waves of cheap or zero pricing more frequently. Zero-price hours tend to cluster on weekends and holidays when demand is lower.
During the week, renewables sometimes accounted for more than 70% of total electricity generation, aided by the completion of several nuclear units. Wind energy output peaked with storms that affected large parts of the country, and strong contributions from solar and hydroelectric sources further pushed prices downward.
Zero euro is not free electricity
Prices at zero euros in the wholesale market do not mean consumer bills are free. The wholesale price directly affects only the portion tied to the regulated tariff, known as the voluntary price for small consumers (PVPC). Other bill components remain in effect for all customers, whether they are on a regulated tariff or a freely negotiated market price set by suppliers.
Beyond the energy portion, bills include certain taxes, government-set levies to fund renewable energy and system costs, and access charges managed by the National Markets and Competition Commission (CNMC) to support transmission and distribution networks. Even when the energy price is zero, customers still pay these other components.
8 million households affected by price movements
The wholesale market price directly shapes the bills for about 8.5 million households with PVPC contracts. The Iberian exemption cap adds a compensation mechanism for gas-fired power plants, but this mechanism has been inactive since last February when gas prices fell below the cap, resulting in no extra cost.
Governments have approved reforms to the regulated tariff to reduce volatility. The reform links the PVPC more closely to a mix of stable, longer-term energy markets in addition to the daily market. The change is planned to take effect in January 2024, shifting more pricing toward longer-term market signals.
Last year, the electricity market saw record prices amid an energy crisis, with extreme fluctuations amplified by Russia’s invasion of Ukraine. Prices soared to unprecedented levels for months, with daily markets reaching over 500 euros per MWh and hourly peaks near 700 euros per MWh.