Doubling the installed wind capacity and nearly tripling solar capacity, as proposed in the updated National Integrated Energy and Climate Plan (PNIEC) approved this week by the government, would cut electricity prices in half by the end of the decade, according to calculations from Red Eléctrica included in the roadmap sent to Brussels. Specifically, wholesale electricity costs are projected to fall to a range of 28 to 34.3 euros per MWh by 2030. So far this year, the average stands at 52.54 euros, and it is forecast to end the year above 60 euros. Source attribution: Red Eléctrica.
That future price relief would push electricity costs to historically low levels. With the exception of 2020, when the COVID-19 pandemic froze activity and collapsed electricity demand, a level similar to the forecast would require going back to 2004 or earlier, when the generation mix was dominated by coal, gas, and nuclear, according to historical records from the Iberian Energy Market Operator (OMIE). Source attribution: OMIE.
Indeed, in the futures market, where energy is bought for delivery in the coming weeks or months and prices include a risk premium, a price of 55 euros for 2030 is noted, roughly double the government roadmap estimate. If PNIEC hits its targets, solar, wind and hydro would supply about three quarters of electricity, with nuclear and gas providing the rest in a balanced mix. Source attribution: market data.
The PNIEC update calls for a strong expansion of storage by the end of the decade. Between batteries and pumped storage plants, Spain should have about 22 GW of installed capacity. However, this will not be enough to avoid electricity losses, as surpluses from renewables that cannot be integrated into the market are estimated at 7.3% (21.7 TWh) in 2030, according to Red Eléctrica. These surpluses are distinct from potential grid constraints that are resolved through the network’s technical constraint mechanism in the transmission or distribution networks and tend to push up the final price. Source attribution: Red Eléctrica.
Farewell to the tariff deficit
In any case, the wholesale market price is not the price paid by the consumer on a monthly bill. It is one of the three main components of the electricity bill, to which regulated costs – tolls and charges – and taxes are added. Regarding regulated costs, these will also be reduced somewhat, especially those linked to paying the so-called tariff deficit that will end in 2028 after decades in which consumers faced 27 billion in debt. Source attribution: PNIEC summaries.
The so-called tariff deficit is the difference between the revenues that electricity companies receive from consumers and the costs recognized by regulation for the supply. In 2002 the government decided that electricity prices would not rise above inflation and froze prices, but energy costs continued rising due to higher oil prices, creating a serious accounting mismatch. Source attribution: historical records.
Also, the costs tied to the renewables, cogeneration and waste regime (RECORE) will gradually be reduced, although the duration and terms will be strongly conditioned by various factors, with the wholesale price of electricity in the wholesale markets being one of the main drivers. Source attribution: PNIEC projections.