2025 has started with an absolute record in the hourly price of the voluntary price for small consumers (PVPC), the regulated electricity rate, which according to the system operator, Red Eléctrica de España (REE), is due to an “error” of one of the agents in the electricity market that is “in the process of being corrected.”
With half of Spain sleeping off the hangover of the New Year’s bells, at 9 a.m. on January 1, one of the slowest days of the year, the hourly price for consumers covered by that rate shot up to a historical maximum of 964.88 euros per megawatt hour (MWh), after multiplying the cost of the so-called adjustment market, as collected by REE data.
REE sources explain that “this is an error made by one of the market participants and is in the process of being corrected.” The system operator does not identify this subject or provide more details on how this problem will be corrected. REE has already notified the marketers that in an “exceptional” manner, the PVPC price could undergo a “republication”, for which it requires the approval of the Ministry for the Ecological Transition.
The final impact of this price peak on the electricity bill of the approximately 8.5 million consumers covered by the PVPC would be practically imperceptible, affecting only the consumption of one hour of the entire month, although it would depend on the demand at that time. specific moment by each user.
Those more than 900 euros/MWh are unprecedented, not even in the worst moments of Russia’s invasion of Ukraine. After that record recorded at 9 in the morning, a few hours later, at 5 in the afternoon, the price of PVPC skyrocketed again on Wednesday to exceed 800 euros per MWh, as can be seen in the following graph.
Specifically, it did so up to 0.80 euros per kilowatt hour (kWh). For this Thursday, January 2, prices fluctuate at much more normal levels: between 0.139 and 0.278 euro cents per kWh.
During those two hours on the first day of 2025, the cost of the so-called “technical restrictions” or adjustment services managed by REE skyrocketed. This market allows supply and demand to be adjusted hour by hour, taking into account possible unavailability in the generation park that has not been possible to take into account when carrying out the first matching in the wholesale market. This is done one day in advance based on estimated demand and supply.
Specifically, as energy expert Francisco Valverde explains on the phone, in those two hours the cost of the so-called “secondary regulation to be lowered” skyrocketed, plants that “in order to maintain the entire balance between generation and demand are asked to quickly lower power.”
“It is a service that in theory lasts a short time, because the tertiary service immediately enters, which is supposed to be cheaper.” But an error by one of the market agents, according to REE, has caused its cost to skyrocket.
Those 964.88 euros (MWh) billed to consumers in PVPC at 9 a.m. on January 1 are broken down into 117.03 euros/MWh corresponding to the sum of the daily and intraday market price and another €839.78/MWh for the so-called “adjustment services”, according to the data available on the Red Eléctrica website.
Irregularities in this market led the National Markets and Competition Commission (CNMC) in 2023 to fine Naturgy with 6 million for offering “excessive prices” in the electricity market and to force the energy company to compensate consumers with 35.5 millions.
Unrelated to gas
These record prices in the PVPC on Wednesday have no relation to the stoppage, also since New Year’s Day, of the flows of Russian gas to the European Union through the gas pipeline that runs through Ukraine, through which in recent months By 2024, around 5% of European consumption of this raw material had been passing through.
This cut by Ukraine, which had been taken for granted for weeks, has led to tensions in the price of this raw material, which has escalated in recent days to around 50 euros/MWh. Gas is trading at its highest levels since October 2023, although it is far from the levels it reached during the worst moments of the energy crisis that led to Russian aggression in Ukraine.
After the Ukrainian cut, there are no problems on the table in the security of supply to the old continent, although the interruption of Russian gas flows from Ukraine is causing tensions in Moldova, Slovakia and Hungary at the beginning of winter.
It is expected to cause an increase in imports from Russia by ship through liquefied natural gas (LNG). And it is causing EU gas stores to be emptied at the fastest rate since 2021, which is expected to complicate filling stocks for the next heating season, which is expected to translate into price tensions.
“There is a growing risk that the EU will emerge from the winter with low levels of gas storage, and that the cost of refilling them will become more expensive,” Arne Lomann Rasmussen, head of analysis at Global Risk Management in Copenhagen, told Bloomberg.
Changes in the PVPC
In 2025, changes to the PVPC have come into effect, with an increase in the weight of the futures market references, which will gradually increase: if in 2024 the long-term references (so as not to make the entire rate dependent regulated daily quotation of the pool) were 25%, this year they are already 40% and in 2026 they will be 55%.
The futures market references are a mechanism that was incorporated on the first day of 2024 in the PVPC with the objective of cushioning the impact of high pool prices on the bills of households and microSMEs, avoiding spikes in the price of the electricity. It was part of the PVPC reform that Spain applied in exchange for obtaining approval from Brussels to apply the so-called Iberian exception during the worst moments of the energy crisis.
Until this reform came into force, the daily wholesale market auction organized by OMIE (the designated electricity market operator) decided the energy prices in the PVPC for each hour of the following day. By adding the factor of futures markets, long-term references were introduced in the price of electricity.
The result is greater stability in consumers’ bills: when market prices skyrocket they do not notice all that rise, while when they fall they only perceive a gentle drop. However, tensions in the market due to technical restrictions such as those registered on New Year’s Day can cause specific hourly increases.
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